THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

RIVERSIDE 


MACMILLAN'S    STANDARD    LIBRARY 


Monopolies   and   Trusts 


TD^TbSS 


Monopolies   and    Trusts 


BY     »!/ 

RICHARD  T^ELY,  Ph.D.,  LL.D. 

PROFESSOR  OF  POLITICAL  ECONOMY  AND  DIRECTOR 

OF  THE  SCHOOL  OF   ECONOMICS,   POLITICAL 

SCIENCE,    AND    HISTORY    IN   THE 

UNIVERSITY  OF  WISCONSIN 


NEW  YORK 
GROSSET    &    DUNLAP 

PUBLISHERS 


HVZ73L 


Copyright,  1900, 
By  THE  MACMILLAN  COMPANY. 


Set  up  and  electrotyped  February,  190a     Reprinted  June, 
1900  ;  March,  190a ;  April,  1906. 


Nortoooo  #«M 
J.  8.  Cnthing  ft  Co.  —  Berwick  ft 

Norwood  Mm  U.S.A. 


PREFACE 


It  will  be  helpful  to  specialists  in  economics,  and 
perhaps  to  others,  to  know  that  the  present  volume 
is  a  small  part  of  a  large  work,  The  Distribution  of 
Wealth,  and  to  be  told  what  position  it  occupies  in 
the  general  plan  so  far  as  at  present  elaborated. 

The  Distribution  of  Wealth,  then,  is  divided  into 
five  main  divisions,  which  may  be  termed  Books, 
as  follows :  Book  I.  The  Fundamentals  in  the  Ex- 
isting Socio- Economic  Order  as  Viewed  from  the 
Stand-point  of  Distribution;  Book  II.  The  Sepa- 
rate Factors  in  Distribution  ;  Book  III.  Individual 
Fortunes ;  Book  IV.  Actual  and  Contemplated 
Modifications  of  the  Distribution  of  Wealth  ;  Book 
V.  Social  Progress  and  Wealth  Distribution.  Book 
I.  consists  of  nine  "Parts,"  as  follows:  Part  I. 
Public  and  Private  Property;  Part  II.  Contract 
and  its  Conditions;  Part  III.  Vested  Interests; 
Part  IV.  Personal  Conditions ;  Part  V.  Custom ; 
Part  VI.  Competition;  Part  VII.  Monopoly;  Part 
VIII.  Public  Authority ;  Part  IX.  Benevolence. 

It  will  thus  be  seen  that  the  discussion  of  Mo- 
nopolies and  Trusts  is  closely  connected  with  other 


PREFACE 

portions  of  an  extensive  treatise,  and  this  fact  must 
be  borne  in  mind  by  those  who  would  understand 
its  scientific  character.  The  History  of  the  Theory 
of  Monopoly,  as  well  as  the  "  Part "  of  Book  I.  deal- 
ing with  "Competition"  and  those  portions  of 
Book  II.  dealing  with  "Differential  Gains"  and 
"  Surplus  Value,"  have  an  especially  close  connec- 
tion with  this  volume.  It  is  the  purpose  of  many 
of  the  foot-notes  to  bring  out  the  relations  of 
various  other  portions  of  this  large  work  to  the 
treatment  of  "  Monopolies  and  Trusts,"  and  thus 
to  explain  what  otherwise  might  be  regarded  as 
omissions.  Undoubtedly  this  explanation  suggests 
certain  disadvantages  in  the  publication  of  one  small 
part  of  a  large  work,  when  all  the  parts  are  closely 
related,  but  it  is  the  only  practicable  method  for 
so  extensive  a  treatise  as  the  author's  work,  The 
Distribution  of  Wealth  ;  and  it  has  its  obvious  ad- 
vantages as  well  as  its  drawbacks. 

It  will  be  readily  apparent  to  the  reader  that  this 
volume  has  not  been  hastily  gotten  together  to 
meet  a  popular  demand  for  a  work  on  Trusts.  The 
author  has  been  engaged  on  The  Distribution  of 
Wealth  a  considerable  portion  of  his  time  for  the 
past  seven  years,  but  he  began  to  give  special  at- 
tention to  the  theory  of  monopoly  twelve  or  thir- 
teen years  ago,  and  in  1888  he  published  his  Prob- 
lems of  To-day,  which  is  quite  largely  devoted  to 
questions  of  monopoly.  That  work,  while  popular 
in  its  nature  and  purpose,  contained  suggestions  of 
an  original  character  which  have  been  fruitful  in  the 

vi 


PREFACE 

development  of  theory,  and  have  also  produced  a 
large  amount  of  discussion  of  a  directly  practical 
kind,  as  hundreds  of  letters  written  to  the  author 
from  all  parts  of  the  United  States  testify.  The 
author  continued  the  scientific  discussion  of  mo- 
nopoly in  his  Introduction  to  Political  Economy,  pub- 
lished in  1 889 ;  in  his  Outlines  of  Economics,  which 
appeared  in  1 893  ;  and  in  his  Socialism  and  Social 
Reform,  which  appeared  one  year  later.  He  fur- 
ther developed  his  theory  in  articles  written  for 
the  magazine  Progress,  the  organ  of  the  Univer- 
sity Association  of  Chicago,  during  1898  and  1899. 
The  purpose  of  these  observations,  as  well  as  of 
foot-notes  giving  references  to  earlier  works,  is  to 
establish  the  author's  just  claims  to  priority  for  his 
original  contributions  to  economic  theory,  so  far  as 
these  relate  to  the  subject  of  monopoly;  for  he 
shares  the  conviction  expressed  by  many,  that  the 
interests  of  science,  as  well  as  a  proper  self-regard, 
demand  that  investigators  should  mark  off  and  claim 
what  they  believe  to  be  their  own,  recognizing,  of 
course,  that  ultimately  it  must  rest  with  others  to 
give  the  final  verdict  upon  the  justice  of  these  claims. 
It  is  in  this  spirit,  then,  with  a  desire  to  claim  his 
own,  but  with  an  equally  sincere  desire  to  attribute 
to  fellow-economists  what  belongs  to  them — and  no 
one  can  justly  accuse  him  of  shortcomings  in  this 
respect  —  that  the  author  has  made  these  remarks, 
and  has  in  this  volume  referred  to  various  earlier 
works. 
While  dates  in  this  work  show  that  parts  of  it  go 
vii 


PREFACE 

back  to  1892,  and  while,  as  already  stated,  the  theo- 
retical development  which  it  contains  was  begun 
by  the  author  much  earlier,  illustrations  have  been 
added  from  an  event  so  recent  as  the  Trust  Con- 
ference held  in  Chicago,  September  13-16  of  the 
current  year ;  and  thus  a  connection  is  established 
with  the  present  discussion  of  trusts. 

Nothing  could  be  further  from  the  author's  mind 
than  to  claim  that  this  volume  contains  all  the 
truth  on  the  subjects  which  it  discusses.  He  would 
like  it  rather  to  be  regarded  as  an  essay  in  the  sense 
in  which  that  word  was  used  by  early  English  writ- 
ers. The  development  of  industrial  society  has 
in  the  past  brought  many  surprises,  and  doubtless 
the  future  will  present  quite  as  many  and  quite  as 
startling  ones.  The  author,  then,  simply  ventures 
to  hope  that  he  has  presented  an  original  contribu- 
tion to  economic  theory  which  will  be  further  de- 
veloped in  the  future  by  others  and  by  himself.  So 
far  as  the  immediately  practical  side  of  this  discus- 
sion is  concerned,  it  is  to  be  said  that  the  aim  has 
been  to  go  below  surface  phenomena  to  underlying 
causes,  and  thus  to  indicate  in  a  general  way  the 
lines  of  progress. 

Richard  T.  Ely. 

Madison,  Wis.,  October,  1899. 
viii 


EDITOR'S    PREFACE 


CITIZEN'S  LIBRARY  OF  ECONOMICS,  POLITICS,  AND 
SOCIOLOGY 


The  present  volume  is  the  first  in  a  Library- 
having  the  above  title.  It  is  hoped  eventually  to 
cover  the  three  fields  of  knowledge  indicated  by 
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cluded in  the  Library  will  afford  such  complete 
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bined with  those  of  separate  and  distinct  treatises. 
To  aid  in  the  accomplishment  of  this  purpose,  it  is 
planned  to  issue  from  time  to  time  an  index  volume 
or  supplement,  binding  together  a  series  on  closely 
related  subjects.  This  Library  thus  includes  new 
and  valuable  features,  for  it  will  give  to  the  public 
a  set  of  works  affording  information  on  topics  of 

ix 


EDITOR'S     PREFACE 

importance  to  every  citizen  which  must  now  be 
sought  in  a  great  multiplicity  of  sources,  and  often 
sought  in  vain. 

The  character  of  the  writers  and  the  manage- 
ment of  the  Library  will  be  such  as  to  inspire 
confidence.  The  utmost  pains  will  be  taken  to 
secure  the  greatest  possible  accuracy  in  all  statis- 
tical tables  and  statements  of  fact  and  theory,  and 
no  partisan  bias  will  disturb  the  conclusions.  It 
is  the  conviction  of  the  Editor  that  scientific  work 
in  the  field  of  the  humanities  may  generally  be 
made  interesting  to  intelligent  citizens  through  cul- 
tivation of  clearness  in  statement  and  literary  style. 
There  are  masterpieces  even  in  Economics,  for  ex- 
ample, which  rank  as  literature,  as  Adam  Smith's 
Wealth  of  Nations  and  John  Stuart  Mill's  Political 
Economy  bear  witness.  It  is  desired  to  lay  empha- 
sis on  the  fact  that  while  the  sciences  of  Economics, 
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zen, and  make  appropriate  the  title  "  Citizen's 
Library,"  in  no  case  will  the  interests  of  science 
be  sacrificed  to  popularity.  The  aim  will  be  to 
bring  every  volume  in  the  Library  up  to  the  pres- 
ent standard  of  science,  and  it  is  hoped  that  the 
Library  will  in  more  than  one  instance  push  for- 
ward the  boundaries  of  knowledge. 

In  conclusion,  it  only  remains  to  add  that  the 
various  authors  assume   responsibility  for  expres- 


EDITOR'S    PREFACE 

sions  of  opinion,  and  that  publication  in  the 
Library  does  not  necessarily  mean  an  endorse- 
ment either  by  publishers  or  Editor  of  views  found 

in  the  several  volumes. 

The  Editor. 


CONTENTS 


CHAP.  PAGE 

I.  The  Idea  of  Monopoly i 

II.  The  Classification  and  Causes  of  Monopolies   .  39 

III.  The  Law  of  Monopoly  Price 96 

IV.  The  Limits  of  Monopoly  and  the  Permanency 

of  Competition 141 

V.  The  Concentration  of  Production  and  Trusts  .  180 

VI.  Evils  and  Remedies 217 

APPENDIX 275 


MONOPOLIES  AND  TRUSTS 


CHAPTER  I 
THE  IDEA  OF  MONOPOLY 

The  first  step  in  the  removal  of  the  bewilder- 
ing confusion  of  thought  in  the  current  discussion 
of  monopolies  and  trusts  is  taken  when  monopoly 
is  clearly  and  accurately  defined.  The  term  mo- 
nopoly, with  which  we  must  begin  any  scientific 
treatment  of  our  subject,  stands  in  the  popular 
mind  not  merely  for  many  different  ideas,  but  for  a 
multiplicity  of  ideas,  some  of  which  are  antago- 
nistic to  each  other.  Two  centuries  ago  Locke  ex- 
pressed the  opinion  that  disputations  were  traceable 
chiefly  to  failure  on  the  part  of  disputants  to  con- 
nect with  a  common  term  the  same  idea,  so  that 
while  they  supposed  they  were  talking  about  one 
and  the  same  thing,  they  were  really  discussing  dif- 
ferent topics.  He  gives  an  instance  of  a  learned 
debate  to  which  he  once  listened  concerning  the 
question  "  whether  any  liquor  passed  through  the 
filaments  of  the  nerves,"  and  says  that  after  the  de- 

A  I 


MONOPOLIES    AND    TRUSTS 

bate  had  continued  for  some  time,  having  "  been 
used  to  suspect  that  the  greatest  part  of  disputes 
were  more  about  the  significance  of  words  than  a 
real  difference  in  the  conception  of  things,"  he  re- 
quested that  before  they  went  any  further  in  their 
arguments  they  should  first  define  the  word  "  liq- 
uor." That  ended  the  debate,  for  they  discovered 
on  examining  into  the  term  that  to  each  of  them 
it  was  a  sign  of  a  different  idea,  that  their  discussion 
turned  merely  on  the  use  of  a  word,  whereas  they 
were  in  agreement  in  ideas.  Locke  also  expresses 
the  view  "  that  it  is  no  shame  to  ask  men  the  mean- 
ing of  their  words,"  as  it  is  "  no  discredit  not  to 
know  what  precise  idea  any  sound  stands  for  in  an- 
other man's  mind  without  he  declare  it  to  me  by 
some  other  way  than  barely  using  that  sound." 

While  a  precise  definition  of  monopoly  cannot 
be  expected  to  produce  harmony  of  views  concern- 
ing monopolies  and  trusts,  it  paves  the  way  for  an 
intelligent  discussion  of  the  scientific  and  practical 
problems  which  they  present,  and  for  their  settle- 
ment. It  is  also  suggested  that  should  no  one  take 
part  in  the  discussion  of  these  problems  until  he 
could  explain  to  himself  and  others  what  he  had  in 
mind  when  he  used  the  word  monopoly,  the  vol- 
ume of  discussion  would  for  some  time  to  come  be 
very  sensibly  diminished,  while,  on  the  other  hand, 
the  improved  quality  of  utterances  relating  thereto 
might  be  a  sufficient  compensation  for  their  dimin- 
ished magnitude. 

But  it  must  be  admitted  that  the  confusion  of 


THE    IDEA    OF    MONOPOLY 

thought  on  our  subject  extends  beyond  the  general 
public,  even  to  our  experts  in  economics.  By  them, 
as  by  the  general  public,  all  sorts  of  things,  differ- 
ing in  essential  characteristics,  have  been  frequently 
lumped  together  as  monopolies.  So  long  as  this 
condition  of  things  lasts,  confusion  of  thought  can- 
not fail  to  continue.  The  reasons  for  the  confusion 
are  obvious.  The  term  monopoly,  when  so  broadly 
used,  embraces  various  classes  of  business,  and  the 
mind  transfers  peculiarities  of  one  business  to  an- 
other business  which  lacks  some  of  these  peculiari- 
ties. When  it  comes  to  debates,  the  confusion  is 
increased  if  the  same  word  carries  several  ideas ;  for 
not  only  does  the  mind  of  each  debater  pass  from 
one  business  to  another,  but  the  minds  of  the  two 
move  unequally  and  irregularly  as  compared  with 
each  other,  so  that  they  are  frequently  talking 
about  different  things  when  they  imagine  that  they 
are  discussing  one  and  the  same  thing ;  and  the 
prospect  of  a  really  enlightening  debate,  ending  in 
agreement,  is  hopeless. 

Manifestly,  there  are  some  large  and  vague  no- 
tions to  which  the  current  discussion  of  monopoly 
may  be  traced.  In  a  general  way,  it  will  doubtless 
be  admitted  by  all  that  there  is  a  distinction  be- 
tween full  and  free  competition  and  monopoly. 
An  examination  of  popular  speeches  and  articles 
on  the  one  hand,  and  of  economic  literature  on  the 
other,  makes  it  plain  that  monopoly  differs  in  the 
mind  of  nearly  if  not  quite  every  one  from  perfect 
competition.     The  difference  may  be  slight  or  it 

3 


MONOPOLIES    AND    TRUSTS 

may  be  great,  but  the  difference  is  acknowledged. 
There  is  no  other  term  to  which,  in  general  usage, 
monopoly  is  so  antagonistic  as  it  is  to  competition ; 
and  this  fact  must  be  our  starting-point. 

Without  attempting  at  the  present  time  to  give 
a  history  of  the  theory  of  monopoly,*  it  is  instruc- 
tive to  trace  in  a  few  typical  writers  the  evolution 
of  the  idea  of  monopoly  as  something  different  from 
free  and  equal  competition,  and  for  present  pur- 
poses we  can  do  no  better  than  to  begin  with 
William  Nassau  Senior,  one  of  the  ablest  econo- 
mists of  the  English  classical  school,  and  one  who, 
unfortunately,  has  been  unduly  neglected.  While 
Senior  did  not  follow  out  and  elaborate  sufficiently 
his  own  thought,  what  he  wrote  was  suggestive, 
and  in  the  field  of  monopoly  especially  should  have 
been  more  fruitful  in  the  development  of  economic 
theory.  But  the  considerable  part  of  Senior's 
Political  Economy  which  deals  with  monopoly, 
while  new  and  valuable  at  the  time,  appears  to 
have  been  that  portion  of  his  treatise  which  above 
all  others  has  been  neglected. 

We  go  at  once  to  the  heart  of  the  subject  if 
we  examine  the  following  statement,  quoted  from 
Senior's  Political  Economy,  in  which  we  find  a  def- 
inition of  monopoly  and  of  monopolist :  "Now  it  is 
clear  that  the  production  in  which  no  appropriated 

*  This  will  be  done  elsewhere,  in  the  work  on  The  Dis- 
tribution of  Wealth,  of  which  the  present  volume  is  only 
a  small  part. 

4 


THE    IDEA    OF    MONOPOLY 

natural  agent  has  concurred  is  the  only  produc- 
tion which  has  been  made  under  circumstances  of 
perfectly  equal  competition.  And  how  few  are  the 
commodities  of  which  the  production  has  in  no 
stage  been  assisted  by  peculiar  advantages  of  soil 
or  situation,  or  by  extraordinary  talent  of  body  or 
mind,  or  by  processes  generally  unknown  or  pro- 
tected by  law  from  imitation  ?  Where  the  assistance 
of  these  agents,  to  which  we  have  given  the  general 
name  of  natural  agents,  has  been  obtained,  the  result 
is  more  valuable  than  the  result  of  equal  labor  and 
abstinence  unassisted  by  similar  aids.  A  commod- 
ity thus  produced  is  called  the  subject  of  a  monop- 
oly; and  the  person  who  has  appropriated  such  a 
natural  agent,  a  monopolist."* 

According  to  Senior,  monopoly,  then,  is  anything 
which  confers  upon  those  who  enjoy  it  a  special 
and  peculiar  economic  privilege,  whatever  this 
special  and  peculiar  economic  privilege  may  be. 
Monopoly  means  to  Senior  production  under  cir- 
cumstances in  which  competition  is  not  perfectly 
equal,  but,  on  the  contrary,  under  circumstances  in 
which  equal  efforts,  either  subjective  or  objective,  or 
both  together,  yield  unequal  returns  to  producers,  f 

*  Senior's  Political  Economy,  p.  103. 

t  The  term  effort,  it  will  be  observed,  is  used  in  a  some- 
what extended  and  technical  sense.  If  two  men  of  equal 
strength  lift  unequal  weights,  their  efforts  are  subjectively 
unequal.  If  two  men  of  unequal  strength  make  equal  phys- 
iological and  psychical  sacrifices,  their  efforts  are  objective- 
ly unequal.    If  two  men  have  unequal  capacity,  the  one  hav- 

5 


MONOPOLIES    AND    TRUSTS 

Several  causes  of  monopoly  are  mentioned,  although 
they  seem  to  be  summed  up  in  the  term  "  appro- 
priated natural  agent."  Mention  is  made  of  three 
causes — namely,  peculiar  advantages  of  soil  or  sit- 
uation ;  extraordinary  talent  of  body  or  mind ; 
secret  processes,  or  processes  which  the  law  pro- 
tects from  imitation. 

It  is  clear,  then,  that  to  Senior  monopoly  is  not 
something  diametrically  opposed  to  competition, 
but  something  which  is  different  from  perfectly 
equal  competition.  To  Senior,  monopoly  means 
production  so  assisted  by  appropriated  natural 
agents  that  it  gives  more  valuable  results  than 
production  not  thus  assisted.  The  idea  is  that 
which  comes  out  so  frequently  in  Senior — namely, 
the  idea  of  surplus  value.  Production  under  per- 
fectly equal  competition  is  thought  of  as  giving 
normal  returns  to  labor  and  capital,  and  the  supe- 
rior returns  of  monopoly  are,  to  Senior,  surplus  value. 
Rent  is  thus  included  under  monopoly,  as  it  is  an 
extra  return  due  to  a  superior  situation  of  land,  or 
to  fertility  beyond  that  of  land  which  yields  simply 

ing  talent,  the  other  only  normal  faculties,  equal  subjective 
efforts  would  yield  unequal  returns.  If  two  men  of  equal 
capacity  cultivate  ground  of  unequal  fertility,  equal  objec- 
tive efforts  would  produce  unequal  returns.  If  our  two  cul- 
tivators of  the  soil  have  unequal  intellectual  capacity  and 
cultivate  land  of  unequal  fertility,  the  inequality  in  returns 
would  be  due  both  to  subjective  and  objective  causes. 
And  in  all  these  cases  we  would,  according  to  Senior,  have 
to  do  with  monopoly. 

6 


THE    IDEA    OF    MONOPOLY 

normal  returns  to  labor  and  capital ;  that  is,  the 
land  which  it  is  only  just  worth  while  to  cultivate. 
But  Senior  extends  the  term  rent  so  as  to  make  it 
cover  generally  what  he  regards  as  monopolistic 
gains.  Whenever  a  differential  advantage  giving 
surplus  value  exists,  we  have,  according  to  Senior, 
monopoly. 

The  idea  of  monopoly  given  by  John  Stuart  Mill 
is  very  similar,  but  in  the  way  in  which  he  puts  it 
he  has  been  followed  more  generally  than  Senior. 
Mill  defines  and  describes  monopoly  in  these  words: 
"  A  thing  which  is  limited  in  quantity,  even  though 
its  possessors  do  not  act  in  concert,  is  still  a  mo- 
nopolized article.  But  even  when  monopolized,  a 
thing  which  is  the  gift  of  nature,  and  requires  no 
labor  or  outlay  as  the  condition  of  its  existence, 
will,  if  there  be  competition  among  the  holders  of 
it,  command  a  price  only  if  it  exists  in  less  quan- 
tity than  the  demand.  If  the  whole  land  of  a 
country  were  required  for  cultivation,  all  of  it  might 
yield  a  rent.  But  in  no  country  of  any  extent  do 
the  wants  of  the  population  require  that  all  the 
land  which  is  capable  of  cultivation  should  be  cul- 
tivated. The  food  and  other  agricultural  produce 
which  the  people  need,  and  which  they  are  willing 
and  able  to  pay  for  at  a  price  which  remunerates 
the  grower,  may  always  be  obtained  without  culti- 
vating all  the  land  ;  sometimes  without  cultivating 
more  than  a  small  part  of  it;  the  lands  most  easily 
cultivated  being  preferred  in  a  very  early  stage  of 
society,  the  more  fertile,  or  those  in  the  more  con- 

7 


MONOPOLIES    AND    TRUSTS 

venient  situations,  in  a  more  advanced  state.  There 
is  always,  therefore,  some  land  which  cannot,  in  ex- 
isting circumstances,  pay  any  rent;  and  no  land 
ever  pays  rent  unless,  in  point  of  fertility  or  situa- 
tion, it  belongs  to  those  superior  kinds  which  exist 
in  less  quantity  than  the  demand — which  cannot  be 
made  to  yield  all  the  produce  required  for  the  com- 
munity, unless  on  terms  still  less  advantageous  than 
the  resort  to  less  favored  soils."  * 

Limitation,  then,  according  to  Mill,  is  the  essence 
of  monopoly  ;  "  a  thing  which  is  limited  in  quantity, 
even  though  its  possessors  do  not  act  in  concert,  is 
still  a  monopolized  article";  and  Mill  speaks  of 
"  competition  among  the  holders  of  it."  He  has 
just  spoken  about  the  owners  of  land  "  acting  to- 
gether as  one  man,"  as  something  conceivable, 
though  it  has  never  happened.  According  to  Mill, 
monopoly  evidently  involves  the  idea  of  surplus 
value — something  over  and  above  returns  to  labor 
and  capital ;  yet  there  is,  according  to  him,  some- 
thing distinct  and  separate  in  "acting  together  as 
one  man."  He  speaks  of  a  possible  competition 
among  the  holders  of  a  monopolized  article,  and  so, 
according  to  Mill,  we  have  the  apparent  anomaly  of 
a  competitive  monopoly.  But  in  the  very  place 
where  he  gives  this  definition  he  says  that  landown- 
ers do  not  act  together  as  one  man,  inasmuch  as  if 
they  did  they  would  have  in  their  hands  a  complete 
control  over  all  the  people  of  the  community  and 

*  Mill's  Political  Economy,  book  ii.,  chap,  xvi.,  §  a. 
8 


THE    IDEA    OF    MONOPOLY 

over  the  entire  wealth  of  society.  "  The  exclusive 
possessor  of  the  land  of  a  country,"  Mill  tells  us, 
"  could  not  well  be  other  than  the  despot  of  it. 
The  effect  would  be  much  the  same  if  the  land  be- 
longed to  so  few  people  that  they  could  and  did 
act  together  as  one  man,  and  fix  the  rent  by  agree- 
ment among  themselves.  This  case,  however,  is 
nowhere  known  to  exist."*  So, according  to  Mill, 
there  is  something  over  and  above  mere  monopoly 
and  distinct  from  monopoly — that  is,  the  "  acting 
together  as  one  man." 

We  next  turn  to  Professor  Henry  Sidgwick,  a 
writer  deservedly  distinguished,  and  frequently 
keen  in  analysis,  who,  however,  in  his  treatment  of 
monopoly,  has  not  avoided  considerable  confusion 
of  thought.  Professor  Sidgwick,  in  one  place  in  his 
Principles  of  Political  Economy,  defines  monopoly 
as  "  the  control  exercised  by  an  individual  seller  or 
combination  of  sellers  over  a  commodity  that  no  one 
else  can  bring  to  market."  f  Then  he  goes  on  to 
say,  "  Now  we  must  use  this  term  more  widely," 
and  he  begins  a  process  of  expansion,  taking  in 
things  which  he  sees  are  beyond  his  definition.  He 
says :  "  In  the  first  place,  it  is  convenient  to  extend 
it  to  cases  in  which  a  person  or  union  of  persons 
— whom  for  brevity  we  will  call  the  monopolist — 
cannot  control  more  than  a  portion  of  the  whole 

*  Mill,  ibid. 

t  This  is  the  definition  which  he  gives  in  book  ii.,  chap, 
ii.,  and  repeats  in  chap.  x. 

9 


MONOPOLIES    AND    TRUSTS 

supply  of  the  commodity,"  because  such  partial 
control  may  result  in  raising  prices  over  and  above 
what  they  would  be  were  there  free  competition. 

Even  where  the  monopolist  has  a  complete  con- 
trol over  the  supply  at  any  particular  time,  Profess- 
or Sidgwick  says  that  we  must  distinguish  be- 
tween different  degrees  of  completeness  ;  but  this 
does  not  seem  quite  scientific.  He  says  monopoly 
may  be  indestructible,  either  permanently,  or  for  a 
determinate  period.  Thus  the  owner  of  a  fine 
painting  by  one  of  the  old  masters,  or  the  owner  of 
land  from  which  valuable  mineral  waters  can  be 
obtained,  may  be  a  monopolist. 

In  the  second  place,  monopoly  may  be  due  to 
"  prospective  unprofitableness  of  the  outlay  of 
wealth  or  labor,  or  both,  that  would  be  required  to 
provide  the  commodity  from  other  sources,"  either 
by  consumers  or  as  ordinary  business  ventures. 

Then,  in  the  third  place,  he  extends  the  concept 
to  include  buyers.  He  speaks  of  buyers'  as  well 
as  sellers'  monopolies,  although  there  is  no  reason 
why  he  should  not  have  included  buyers  in  his 
definition.  After  all  he  does  not  introduce  any 
essentially  new  ideas  into  his  concept  except  to 
add  partial  monopolies  and  buyers'  monopolies, 
and  partial  monopolies  are  included  in  the  idea  of 
monopoly. 

If  we  turn  to  two  younger  writers  who  have 
given  much  attention  to  monopoly — namely,  Pro- 
fessor Simon  N.  Patten  and  Mr.  John  A.  Hobson — 
we  find  that  they  have  so  enlarged  the  idea  of 

10 


THE    IDEA    OF    MONOPOLY 

monopoly  as  to  include  under  the  head  of  monop- 
oly all  participation  in  a  surplus  gain  in  produc- 
tion or  consumption  over  and  above  costs.  Ac- 
cording to  Professor  Patten,  we  have  this  surplus 
over  and  above  costs  in  every  part  of  the  economic 
field.  Wages  participate  in  the  surplus  ;  profits  do 
likewise,  and  rent  also.  They  all  participate  in  the 
marginal  surplus,  and  thus  as  a  result  we  have  a 
society  composed  of  monopolists.  Every  one  has 
a  monopoly;  and  then  we  have  to  make  a  further 
distinction  between  competitive  monopolies  and 
exclusive  monopolies !  This  is  brought  out  by  Dr. 
Emory  R.  Johnson  in  his  article  on  "  The  Relation 
of  Taxation  to  Monopolies,"  in  the  Annals  of  the 
American  Academy  of  Political  and  Social  Science 
for  March,  1894;  for  in  this  essay  he  presents  the 
views  shared  by  himself  and  Professor  Patten.* 
Dr.  Johnson  gives  this  definition  of  monopoly:  "By 
a  monopoly  is  meant  any  productive  agent  possess- 
ing monopoly  force.  A  monopoly  force  is  that 
which  gives  to  a  productive  agent  the  disposal  of  a 
definite  portion  of  the  surplus  resulting  from  pro- 
duction."   And  as  all  agents  of  production,  accord- 

*  Professor  Patten's  idea  of  monopoly  pervades  nearly, 
if  not  quite,  all  his  economic  writings.  The  following  spe- 
cial references,  however,  may  prove  helpful  to  those  who 
wish  to  examine  further  his  concept  of  monopoly:  "Cost 
and  Utility,"  in  the  Annals  of  the  American  Academy  for 
January,  1893,  p.  35  ;  his  monographs,  Dynamic  Economics, 
pp.  63,  102,  107,  114;  Stability  of  Prices,  pp.  39-40,  57; 
Principles  of  Rational  Taxation,  pp.  7,  14. 

II 


MONOPOLIES    AND    TRUSTS 

ing  to  Professor  Patten,  do  have  the  disposal  of  a 
definite  portion  of  the  surplus,  we  have  the  appar- 
ently curious  anomaly  of  a  monopoly  force  which 
includes  the  entire  field  of  production.  We  could 
scarcely  have  a  more  violent  departure  from  the 
ordinary  usages  of  language ;  and  yet,  in  the  distinc- 
tion they  make  between  competitive  monopolies 
and  non- competitive  monopolies,  they  have  good 
company  in  Mill,  although  he  did  not  elaborate  the 
idea  as  they  have  done. 

Mr.  Hobson  has  until  recently  had  just  as  wide 
an  idea  of  monopoly,*  although  he  has  considered 
the  subject  more  objectively  than  Professor  Patten. 
In  every  part  of  the  industrial  field,  and  in  nearly 
every  bargain  that  is  made  between  men  —  and 
distribution  is  effected  by  bargaining  —  we  find 
a  surplus,  and  to  that  surplus,  until  recently,  Mr. 
Hobson  has  given  the  name  of  monopoly  gain. 
Now,  however,  he  has  yielded  to  the  present 
writer's  criticism,  and  to  this  gain  which  is  found 
in  the  ordinary  bargain  he  applies  the  term  "  forced 
gain";  and  that  is  the  term  which  will  be  found 
employed  in  his  new  book,  The  Economics  of  Distri- 
bution^ He  has  given  up  his  former  all-inclusive 
idea  of  monopoly. 


*  See,  for  example,  Mr.  Hobson's  article,  "  The  Law  of 
the  Three  Rents,"  in  the  Quarterly  Journal  of  Economics 
for  April,  1891,  pp.  267-8,  and  273-4. 

t  The  writer  has  had  the  privilege  of  reading  the  manu- 
script, and,  on  account  of  the  importance  which  he  attributes 


THE    IDEA    OF    MONOPOLY 

We  thus  reach  the  termination  of  one  line  of  evo- 
lution. We  begin  with  the  large  and  somewhaf 
vague  idea  of  any  superiority  over  and  above  thaf 
enjoyed  by  those  who  simply  have  the  opportunity* 
to  compete  freely  with  anybody,  this  superiority 
yielding  surplus  value;  and  we  end  with  the  doc- 
trine that  all  who  participate  in  production  enjoy  a 
surplus  over  and  above  what  are  to  them  costs — 
that  is,  over  and  above  the  real  pains  and  other 
sacrifices  they  undergo  in  production,  and  thus  we 
have  our  entire  industrial  society  composed  of  mo- 
nopolists. 

The  conclusion  suggests  itself  that  a  satisfactory 
discussion  of  monopoly  must  be  based  on  a  more 
restricted  idea  of  monopoly.  It  is  necessary  to 
return  to  the  more  ordinary  usage  of  language. 
What  monopoly  really  signifies  when  we  think  of 
it  as  the  opposite  of  competition,  is  unity  in  man- 
agement of  some  kind  of  business*  in  some  essential 
particular.  It  may  be  in  production,  it  may  be  in 
sales,  or  it  may  be  in  purchases,  or  it  may  be  in 
any  two  or  all  three  of  these  particulars.  It  is 
the  writer's  belief  that  this  is  the  only  satisfactory 
use  of  the  term  monopoly,  for  it  alone  gives  us  a 
clear,  scientific  concept  which  is  workable.  We 
may,  then,  formulate  this  definition  of  monopoly : 


to  the  work,  feels  himself  justified  in  referring  to  it,  though 
it  will  be  several  months  before  it  appears. 

*  Business  is  used  here  in  the  widest  sense,  embracing 
not  only  material  production,  but  services  of  every  sort. 

13 


MONOPOLIES    AND    TRUSTS 

Monopoly  means  that  substantial  unity  of  ^t^n  C!* 
17ieJ>artofone  or  more  persons  engaged  iff  some  kind 
of  businesswhich  gives  exclusive  control,  more  Par-_ 
licularlyTalThough  not  solely,  with  respect  to  price. 
^  A  few  points  in  our  definition  require  comment. 
Price  is  essential,  and  must  be  regarded  as  the 
fundamental  test  of  monopoly,  even  if  it  is  obvious 
that  price-formation  and  price-control  do  not  ex- 
haust monopoly,  since  its  import  reaches  beyond 
price.  The  other  things  than  price-control  which 
monopoly  carries  with  it  flow  from  such  control 
and  are  not  secure  without  it.  A  certain  unity  of 
action  may  be  obtained  without  the  establishment 
of  monopoly,  since  it  does  not  give  rise  to  monopoly 
until  the  power  to  control  price  is  secured.  Again, 
it  may  seem  needless  to  put  in  "  on  the  part  of  one 
or  more  persons,"  because  it  would  appear  to  be  a 
matter  of  course,  and  yet  it  is  required  to  complete 
our  concept.  We  may  have  a  monopoly  of  one 
person,  and  one  person  may  act  in  such  a  manner 
as  to  receive  the  advantages  of  unified  control — 
and  if  a  person  is  mentally  competent  he  will  so 
act ;  or  we  may  have  a  monopoly  controlled  by  a 
combination  of  persons. 

The  essence  of  monopoly,  then,  is  substantial  and 
controlling  unity  of  action.  It  is  not  said  that  unity 
of  action  need  be  absolute,  but  there  must  be  sub- 
stantial unity  of  action.  Those  in  control  of  a  mo- 
nopolized business  act  as  one  man,  as  one  person, 
and  they  gain  the  advantages,  whatever  they  may 
be,  great  or   small,  of   unified  action.      Professor 

14 


THE    IDEA    OF    MONOPOLY 

Sidgwick  has  spoken  about  the  possibility  of  a  mo- 
nopoly which  would  not  prevent  price  from  falling 
below  cost.  That  is  quite  possible  and  quite  com- 
patible with  the  definition  given.  The  advantage 
of  unified  action  may  be  that  the  loss  is  diminished. 
There  would  then  be  a  negative  advantage.  Some- 
times a  monopoly  will  give  perhaps  simply  normal 
returns ;  sometimes  there  is  loss,  as  in  the  case  of 
an  unprofitable  copyrighted  book ;  sometimes  it 
might  happen  that  the  monopoly  price  would  be 
exactly  the  same  as  the  competitive  price ;  some- 
times it  may  go,  and  generally  will  go,  above  the 
competitive  price,*  although  there  might  be  other 
gains  than  that  resulting  from  higher  price.  But 
whatever  the  gains  resulting  from  unified  action, 
they  belong  to  monopoly.  Monopoly  signifies  this 
unity  of  action,  this  unity  of  control  in  business. 
If  eighty  per  cent,  of  a  business  gives  substantial 
and  controlling  unity  in  the  business — that  is,  if 
those  who  own  eighty  per  cent,  of  the  business  are 
able  to  control  it  and  make  everything  act  in  accord- 
ance with  their  policy,  then  we  have  monopoly,  f 

*  This  point  is  discussed  in  chap,  vi.,  pp.  221-225. 

t  According  to  Mr.  Henry  O.  Havemeyer,  President  of 
the  American  Sugar  Refining  Company,  a  man  producing 
eighty  per  cent,  of  an  article  has  a  monopoly.  The  follow- 
ing are  extracts  from  his  testimony  given  before  the  "Joint 
Committee  of  the  Senate  and  Assembly  of  New  York 
State  "  in  1897  (the  so-called  Lexow  Trust  Committee),  and 
are  instructive  in  this  connection : 

"  It  goes  without  saying  that  a  man  who  produces  80  per  cent. 
15 


MONOPOLIES    AND    TRUSTS 

The  precise  definition  given  here  of  monopoly 
appears  in  the  main  to  be  in  accordance  with  the 
best  English  usage,  and  also  to  be  in  harmony  with 
the  meaning  given  to  the  corresponding  word  in 
other  modern  languages  by  those  who  use  these 
languages  with  discrimination. 

The  etymological  history  of  a  word  is  not  deci- 
sive, but  it  is  something  which  throws  at  least  a  side- 
light on  the  meaning  of  terms,  and  should  not  be 
neglected.  The  word  monopoly  is  traced  through 
the  Greek  nouns  fMovorrcoXiov  and  fiovotraikia,  to  the 
two  Greek  words  fwvos  (alone)  and  ircoXelv  (to  sell). 

of  an  article  can  control  the  price  by  not  producing;  the  price  must 
advance  if  he  does  not  produce  ;  and  it  must  decline  if  he  does  pro- 
duce, if  he  produces  more  than  the  market  will  take." 

And  a  little  further  on  he  again  states  this  in  reply  to  a 
question : 

"  It  goes  without  saying  that  a  corporation  that  controls  80  per 
cent,  of  the  product  does  control  the  market  price  up  to  the  import- 
ing point,  if  he  chooses  to  exercise  that  power,  for  it  goes  without 
saying  that  that  same  power  can  be  exercised  to  diminish  the  price ; 
when  you  ask  whether  it  was  the  idea  in  mind  on  the  formation  of 
the  company,  I  would  say  that  I  do  not  think  it  was  ;  that  testi- 
mony wants  to  be  read  in  connection  with  what  went  before  it  and 
with  the  objects  of  that  investigation. " 

Then  follows  this  question : 

"Then,  according  to  your  present  version  of  it,  in  any  event, 
whether  it  was  your  object  or  not,  that  object  was  reached  by  rea- 
son of  your  controlling  80  per  cent,  of  the  product ;  you  do  in  fact 
control  the  product  and  price  in  the  United  States  ?" 

To  which  the  answer  was  given : 
"We  undoubtedly  do." 

16 


THE    IDEA    OF    MONOPOLY 

Movo7rco\ia  means,  first,  simply  exclusive  sale,  but  it 
is  natural  to  extend  it  so  as  to  signify  the  exclusive 
right  or  power  of  sale,  and  the  latter  meaning  is 
the  one  given  in  the  dictionaries  for  /xovottcoXiov. 
The  meaning  of  the  Greek  words  is  something 
which  is  reflected  in  the  corresponding  modern 
words,  and  those  who  employ  language  with  fine 
discrimination  have,  in  this  case  at  any  rate,  not 
forgotten  the  Greek  source  of  the  terms  monopoly 
and  monopolist. 

The  makers  of  dictionaries  of  the  English  lan- 
guage should  be  heard  before  a  final  decision  is 
reached  concerning  the  meaning  of  terms,  especial- 
ly those  employed  in  familiar  discourse,  but  it  is 
sufficient  for  present  purposes  to  cite  Webster's 
International  Dictionary  and  the  Century  Diction- 
ary, as  these  two  give  all  the  essential  points. 

Webster's  definition  is  as  follows :  "  The  exclu- 
sive power,  right,  or  privilege  of  selling  a  com- 
modity; the  exclusive  power,  right,  or  privilege  of 
dealing  in  some  article  or  of  trading  in  some  mar- 
ket ;  sole  command  of  the  traffic  in  anything,  how- 
ever obtained ;  as  the  proprietor  of  a  patented  ar- 
ticle is  given  a  monopoly  of  its  sale  for  a  limited 
time ;  chartered  trading  companies  have  sometimes 
had  a  monopoly  of  trade  with  remote  regions ;  a 
combination  of  traders  may  get  a  monopoly  of  a 
particular  product."  After  saying  this,  Webster 
gives  a  quotation  from  Macaulay:  "Raleigh  held  a 
monopoly  of  cards ;  Essex  of  sweet  wines."  Web- 
ster gives  two  other  definitions :  "  Exclusive  pos- 
b  17 


MONOPOLIES    AND    TRUSTS 

session,  as  a  monopoly  of  land  ";  and  "  The  com- 
modity or  other  material  thing  to  which  the  mo- 
nopoly relates ;  tobacco  is  a  monopoly  in  France." 
In  the  Century  Dictionary,  we  find  the  same  idea 
— namely,  that  monopoly  means  exclusive  control: 
"  An  exclusive  privilege  to  carry  on  a  traffic."  It 
is  the  same  idea  which  is  found  in  Blackstone  also, 
as  is  seen  in  the  quotation  given  from  him  in  the 
Century  Dictionary.  It  is  as  follows :  "  Monopolies 
are  much  the  same  offences  in  other  branches  of 
trade  that  engrossing  is  in  provisions,  being  a  li- 
cense or  privilege  allowed  by  the  king  for  the  sole 
buying  or  selling,  making,  working,  or  using  of  any- 
thing whatsoever ;  whereby  the  subject  in  general 
is  restrained  from  that  liberty  of  manufacturing  or 
trading  which  he  had  before."*  Here  we  find 
monopoly  applied  to  manufacturing  and  trading, 
and  the  privilege  is  granted  by  the  king.  That 
was  the  old  idea  of  monopoly,  as  we  shall  see. 
The  older  monopolies,  those  which  are  mentioned 
in  Bills  of  Rights  and  elsewhere  in  the  constitu- 
tions of  the  American  states,  are  these  exclusive 
grants.  A  monopoly  in  these  instruments  signifies 
what  is  given  in  the  Century  Dictionary  under 
"2"  as  belonging  to  English  constitutional  law 
and  hence  sometimes  to  American  law — name- 
ly, "  An  exclusive  privilege  when  granted  by  the 
Crown  or  the  State  to  an  individual,  association,  or 
corporation  for  the  sake  of  the  pecuniary  advantage 

*  Blackstone's  Commentaries,  chap,  iv.,  p.  1 59. 
18 


THE    IDEA    OF    MONOPOLY 

of  its  exclusiveness."  Whatever  advantage  comes 
from  such  exclusiveness  belongs  to  monopoly.  In 
the  older  English  law  a  distinction  was  made  be- 
tween engrossing  and  monopolies.  Engrossing 
was  not  an  exclusive  privilege  granted  by  the  state, 
but  an  exclusive  control  secured  by  buying  up  and 
cornering  the  article.  We  do  not  now  make  this 
distinction.* 

The  Century  Dictionary  seems  to  confine  mo- 
nopoly to  something  objectionable.  It  speaks  of 
exclusive  privileges  granted   for  regulation  as  not 

*  Regrating  and  forestalling  were  in  English  law  special 
kinds  of  monopolistic  enterprises  which  grew  up  out  of  the 
conditions  of  early  English  life.  The  following  definitions 
are  taken  from  Beach's  Monopolies  and  Industrial  Trusts, 
pp.  5  and  6: 

"  '  Regrating.  In  old  English  law,  the  offence  of  buying  or  get- 
ting into  one's  hands  at  a  fair  or  market  any  provisions,  corn,  or 
other  dead  victual,  with  the  intention  of  selling  the  same  again  in 
the  same  fair  or  market,  or  in  some  other  within  four  miles  thereof, 
at  a  higher  price.  The  offender  was  termed  a  regrater. ' — Black, 
Law  Dictionary. 

"  '  Regrating.  In  criminal  law  every  practice  or  device,  by  act, 
conspiracy,  words,  or  news,  to  enhance  the  price  of  victual  or  other 
merchandise,  is  so  denominated.' 

"  '  Forestalling  the  market.  The  act  of  buying  or  contracting 
for  any  merchandise  or  provision  on  its  way  to  the  market  with  the 
intention  of  selling  it  again  at  a  higher  price;  or  the  dissuading  per- 
sons from  bringing  their  goods  or  provisions  there ;  or  persuading 
them  to  enhance  the  price  when  there. — 4  Blackstone's  Commen- 
taries, 158.  This  was  formerly  an  indictable  offence,  but  is  now 
abolished  by  St.  7  and  8  Vict.,  chap,  xxiv.' — Black,  Law  Diction- 
ary.    See  also  Bouvier,  title,  Forestalling  the  Market." 

These  distinctions  have  at  present  chiefly  an  historical 
and  psychological  interest. 

19 


MONOPOLIES    AND    TRUSTS 

deemed  monopolies — as  the  privilege  of  engaging 
in  banking,  carrying  on  a  liquor  business,  etc.  But 
then  the  Century  Dictionary  goes  on  to  say  that 
such  a  privilege  would  be  a  monopoly  if  granted 
to  a  limited  number,  to  one  or  to  a  few.  This 
distinction  has  meaning  only  as  it  points  to  the 
power  of  one  or  a  few  to  exercise  unified  con- 
trol over  a  business.  Patents  and  copyrights  are 
not  called  monopolies  by  the  Century  Diction- 
ary. 

The  third  definition  given  by  this  dictionary  is 
for  the  word  as  used  in  political  economy  and  in  a 
general  sense  in  law :  "  Such  an  exclusive  privilege 
to  carry  on  a  traffic  or  deal  in  or  control  a  given 
class  of  articles  as  will  enable  the  holder  to  raise 
prices  materially  above  what  they  would  be  if  the 
traffic  or  dealing  were  free  to  citizens  generally." 
As  an  illustration,  mention  is  made  of  the  exclu- 
sive control  of  the  only  land  from  which  a  certain 
product  can  be  obtained,  such  as  rare  mineral 
waters,  earths,  or  ores  ;  and  it  is  stated  that  busi- 
nesses over  which  such  exclusive  control  is  exer- 
cised are  sometimes  spoken  of  as  natural  monopo- 
lies in  contrast  to  artificial  monopolies. 

Continuing  the  definitions  of  the  Century  Diction- 
ary, we  find  in  the  fourth  place  that  monopoly 
means  "  that  which  is  the  subject  of  monopoly,  as 
opium  in  Bengal."  Then,  fifth,  "the  possession  or 
assumption  of  anything  to  the  exclusion  of  other 
possessors :  thus,  a  man  is  popularly  said  to  have  a 
monopoly  of  any  business  of  which  he  has  acquired 

20 


THE    IDEA    OF    MONOPOLY 

complete  control."     Sixth,  "  a  company  or  corpora- 
tion which  enjoys  a  monopoly." 

Furthermore,  attention  is  called  by  the  Century 
Dictionary  to  a  distinction  which  is  sometimes 
found  in  law  between  monopolies  and  virtual  mo- 
nopolies. Virtual  monopoly  is  stated  to  be  a 
term  found  in  constitutional  law  and  in  the  history 
of  legislation,  the  appropriate  application  of  which 
is  in  dispute.  It  is  "used  to  characterize  a  busi- 
ness which,  though  not  declared  by  law  to  be  a 
monopoly  or  exclusive  franchise  protected  as  such, 
as  by  a  patent  or  exclusive  charter,  is  yet  so  re- 
lated to  the  great  channels  and  currents  of  com- 
merce that  the  allowing  of  it  to  enjoy  the  same 
protection  as  other  private  property  and  business 
secures  to  it  indirectly  exclusive  advantages  sub- 
stantially equivalent  to  a  legal  monopoly."  The 
great  grain  elevators  are  given  as  an  illustration. 

It  is  seen  that  there  runs  through  all  these  mean- 
ings the  notion  of  exclusiveness  or  unity  as  the 
dominating  thought,  as  the  essential  thing  for  which 
the  mind  is  more  or  less  successfully  struggling  and 
the  thought  about  which  other  things  are  grouped. 
Exclusive  unity  in  business  is  what  monopoly  sig- 
nifies. The  business  is  unified  and  others  are  kept 
out  of  it,  except  those  who  act  with  the  combina- 
tion, if  it  is  a  combination.  If  it  is  only  one  per- 
son, then  necessarily  there  is  a  monopoly. 

Strictly  speaking,  monopoly  originally  means  the 
exclusive  right  to  sell  and  not  to  buy  or  produce. 
The  right  of  sale  is  emphasized  by  all  of  these  def- 


MONOPOLIES    AND    TRUSTS 

initions.  The  Germans  have  a  word, "  Regal,"  which 
has  sometimes  been  employed  to  indicate  the  ex- 
clusive right  of  manufacturing  as  opposed  to  the 
exclusive  right  of  selling,  and  for  this  we  could  use 
the  Latin  word  "regale."  Such  a  distinction  is, 
however,  not  usually  made  now,  in  either  the  Ger- 
man or  the  English  language,  but  the  word  "  mo- 
nopoly" ("  Monopol "  in  German)  is  employed  to 
cover  both  selling  and  manufacturing.  Blackstone, 
in  the  quotation  given,  uses  the  term  monopoly 
with  reference  to  manufacturing. 

As  the  economists,  to  whom  it  peculiarly  be- 
longs, have  so  generally  failed  to  give  any  clear 
and  concise  notion  of  monopoly,  it  need  not  ex- 
cite surprise  that  the  law  has  been  confused  and 
perplexed  when  it  has  had  to  deal  with  problems 
of  monopoly;  so  that  judicial  utterances  and  de- 
cisions have  been  unsatisfactory  to  all  interests  in- 
volved, and  frequently  contradictory  one  with  an- 
other in  their  interpretations.  Two  points  in  the 
legal  treatment  of  monopoly,  however,  deserve  con- 
sideration. One  is  the  entirely  sound  tendency  to 
emphasize  unified  control  of  business  as  an  essen- 
tial characteristic  of  monopoly.  Lord  Coke,  in  the 
seventeenth  century,  laid  emphasis  upon  the  ex- 
clusive notion  of  monopoly,  when  he  said  that  it 
consisted  of  power  granted  "  to  any  person  or  per- 
sons, bodies  politic  or  corporate,  for  the  sole  buy- 
ing, selling,  making,  working,  or  using  of  anything, 
whereby  any  person  or  persons,  bodies  politic  or 
corporate,  are  sought  to  be  restrained  of  any  free- 


THE    IDEA    OF    MONOPOLY 

dom  or  liberty  that  they  had  before,  or  hindered  in 
their  lawful  trade."*  Blackstone,  in  his  Commen- 
taries on  the  Laws  of  England,  gave  almost  precisely 
the  same  definition  in  the  following  century.  Re- 
cent American  decisions  lay  emphasis  on  exclusive- 
ness  as  a  test  of  monopoly.  The  following  extract 
brings  out  with  exceptional  clearness  this  peculiar- 
ity of  monopoly :  "  A  monopoly  exists  where  all 
or  so  nearly  all  of  an  article  of  trade  or  commerce 
within  a  community  or  district  is  brought  within 
the  hands  of  one  man  or  one  set  of  men,  as  to 
practically  bring  the  handling  or  production  of  the 
commodity  or  thing  within  such  single  control,  to 
the  exclusion  of  competition  or  free  traffic  therein. 
Anything  less  than  this  is  not  a  monopoly."  f  Mr. 
F.  H.  Cooke,  in  his  Trade  and  Labor  Combinations, 
similarly  defines  monopoly  as  the  "  exclusive  right 
of  selling.":}: 

The  second  legal  point  in  the  definition  of  mo- 
nopoly is  that  which  makes  monopoly  proceed  from 
an  express  grant  of  public  authority.  Lord  Coke 
says :  "  A  monopoly  is  an  institution  or  allowance 
by  the  king,  by  his  grant,  commission,  or  other- 

♦Coke,  3  Institutes,  181.  Quoted  by  C.  F.  Beach,  Sr., 
in  his  Monopolies  and  Industrial  Trusts,  §  5. 

f  See  Herriman  vs.  Menzies,  115  Cal.,  16,  20;  Supreme 
Court,  46  Pac.  Rep.,  730  (1896).  Quoted  by  F.  H.  Cooke 
in  his  Trade  and  Labor  Combinations,  part  ii.,  §  18,  foot- 
note 1,  p.  95.  For  pertinent  utterances  in  other  decisions, 
see  the  numerous  quotations  in  the  foot-notes  accompany- 
ing part  ii.  of  that  work.  \  Cooke,  ibid. 

23 


MONOPOLIES    AND    TRUSTS 

wise " ;  and  Blackstone  uses  similar  language  in 
defining  monopoly  "as  a  license  or  privilege  allowed 
by  the  king." 

Historically,  this  source  of  monopoly  power  is  of 
paramount  importance.  From  early  times,  English 
sovereigns  granted  monopolies  either  for  public  or 
private  reasons,  and  they  became  a  grievous  bur- 
den. Queen  Elizabeth  in  particular  sinned  in  this 
respect,  regarding  the  right  to  grant  monopolies  as 
"  one  of  the  fairest  flowers  "  in  her  prerogative,  and 
it  was  not  long  before  the  citizen  found  himself  re- 
strained and  shut  in  on  every  side  by  a  privileged 
class  of  monopolists.  Hume,  in  his  History  of 
England,  describes  forcefully  the  extent  to  which 
monopolies  have  existed  in  England,  and  in  vivid 
language  he  portrays  evils  which  proceeded  from 
them.  The  following  quotation  is  of  such  import- 
ance in  this  connection  as  to  justify  its  length : 

"The  active  reign  of  Elizabeth  had  enabled  many 
persons  to  distinguish  themselves  in  civil  and  military 
employments ;  and  the  queen,  who  was  not  able  from 
her  revenue  to  give  them  any  rewards  proportioned  to 
their  services,  had  made  use  of  an  expedient  which  had 
been  employed  by  her  predecessors,  but  which  had  nev- 
er been  carried  to  such  an  extreme  as  under  her  admin- 
istration. She  granted  her  servants  and  courtiers  pat- 
ents for  monopolies;  and  these  patents  they  sold  to 
others,  who  were  thereby  enabled  to  raise  commodities 
to  what  price  they  pleased,  and  who  put  invincible  re- 
straints upon  all  commerce,  industry,  and  emulation  in 

24 


THE    IDEA    OF    MONOPOLY 

the  arts.  It  is  astonishing  to  consider  the  number  and 
importance  of  those  commodities  which  were  thus  as- 
signed over  to  patentees.  Currants,  salt,  iron,  powder, 
cards,  calf-skins,  fells,  pouldavies,  ox-shin  bones,  train- 
oil,  lists  of  cloth,  potashes,  aniseseeds,  vinegar,  sea-coals, 
steel,  aqua-vitae,  brushes,  pots,  bottles,  saltpetre,  lead, 
accidences,  oil,  calamine -stone,  oil  of  blubber,  glasses, 
paper,  starch,  tin,  sulphur,  new  drapery,  dried  pilchards, 
transportation  of  iron  ordnance,  of  beer,  of  horn,  of 
leather,  importation  of  Spanish  wool,  of  Irish  yarn : 
these  are  but  a  part  of  the  commodities  which  had  been 
appropriated  to  monopolists.  When  this  list  was  read  in 
the  House,  a  member  cried,  '  Is  not  bread  in  the  num- 
ber?' '  Bread,'  said  every  one  with  astonishment.  'Yes, 
I  assure  you,'  replied  he, '  if  affairs  go  on  at  this  rate,  we 
shall  have  bread  reduced  to  a  monopoly  before  next  Par- 
liament.' These  monopolists  were  so  exorbitant  in  their 
demands  that  in  some  places  they  raised  the  price  of 
salt  from  sixteen  pence  a  bushel  to  fourteen  or  fifteen 
shillings.  Such  high  profits  naturally  begat  intruders 
upon  their  commerce ;  and,  in  order  to  secure  themselves 
against  encroachments,  the  patentees  were  armed  with 
high  and  arbitrary  powers  from  the  council,  by  which 
they  were  enabled  to  oppress  the  people  at  pleasure,  and 
to  exact  money  from  such  as  they  thought  proper  to 
accuse  of  interfering  with  their  patent.  The  patentees 
of  saltpetre,  having  the  power  of  entering  into  every 
house,  and  of  committing  what  havoc  they  pleased  in 
stables,  cellars,  or  wherever  they  suspected  saltpetre 
might  be  gathered,  commonly  extorted  money  from 
those  who  desired  to  free  themselves  from  this  damage 
or  trouble.  And  while  all  domestic  intercourse  was 
thus  restrained,  lest  any  scope  should  remain  for  indus- 

25 


MONOPOLIES    AND    TRUSTS 

try,  almost  every  species  of  foreign  commerce  was  con- 
fined to  exclusive  companies  who  bought  and  sold  at 
any  price  that  they  themselves  thought  proper  to  offer  or 
exact. 

"  These  grievances,  the  most  intolerable  for  the  pres- 
ent, and  the  most  pernicious  in  their  consequences  that 
ever  were  known  in  any  age  or  under  any  government, 
had  been  mentioned  in  the  last  Parliament,  and  a  peti- 
tion had  even  been  presented  to  the  queen,  complaining 
of  the  patents  ;  but  she  still  persisted  in  defending  her 
monopolists  against  her  people.  A  bill  was  now  intro- 
duced into  the  Lower  House,  abolishing  all  these  mo- 
nopolies ;  and,  as  the  former  application  had  been  un- 
successful, a  law  was  insisted  on  as  the  only  certain 
expedient  for  correcting  these  abuses.  The  courtiers, 
on  the  other  hand,  maintained  that  this  matter  regarded 
the  prerogative,  and  that  the  Commons  could  never  hope 
for  success,  if  they  did  not  make  application,  in  the  most 
humble  and  respectful  manner,  to  the  queen's  goodness 
and  beneficence.  The  topics  which  were  advanced  in 
the  House,  and  which  came  equally  from  the  courtiers 
and  the  country  gentlemen,  and  were  admitted  by  both, 
will  appear  the  most  extraordinary  to  such  as  are  pre- 
possessed with  an  idea  of  the  privileges  enjoyed  by  the 
people  during  that  age,  and  of  the  liberty  possessed 
under  the  administration  of  Elizabeth.  It  was  asserted 
that  the  queen  inherited  both  an  enlarging  and  a  re- 
straining power;  by  her  prerogative  she  might  set  at 
liberty  what  was  restrained  by  statute  or  otherwise,  and 
by  her  prerogative  she  might  restrain  what  was  other- 
wise at  liberty:  that  the  royal  prerogative  was  not  to  be 
canvassed,  nor  disputed,  nor  examined;  and  did  not 
even  admit  of  any  limitation  :  that  absolute  princes,  such 

26 


THE    IDEA    OF    MONOPOLY 

as  the  sovereigns  of  England,  were  a  species  of  divinity: 
that  it  was  in  vain  to  attempt  tying  the  queen's  hands 
by  laws  or  statute  ;  since,  by  means  of  her  dispensing 
power,  she  could  loosen  herself  at  pleasure :  and  that 
even  if  a  clause  should  be  annexed  to  a  statute,  exclud- 
ing her  dispensing  power,  she  could  first  dispense  with 
that  clause  and  then  with  the  statute.  After  all  this 
discourse,  more  worthy  of  a  Turkish  divan  than  of  an 
English  House  of  Commons,  according  to  our  present 
idea  of  this  assembly,  the  queen,  who  perceived  how 
odious  monopolies  had  become  and  what  heats  were 
likely  to  arise,  sent  for  the  Speaker,  and  desired  him  to 
acquaint  the  House  that  she  would  immediately  cancel 
the  most  grievous  and  oppressive  of  these  patents. 

"  The  House  was  struck  with  astonishment  and  admi- 
ration and  gratitude  at  this  extraordinary  instance  of 
the  queen's  goodness  and  condescension.  A  member 
said,  with  tears  in  his  eyes,  that  if  a  sentence  of  ever- 
lasting happiness  had  been  pronounced  in  his  favor  he 
could  not  have  felt  more  joy  than  that  with  which  he 
was  at  present  overwhelmed.  Another  observed  that 
this  message  from  the  sacred  person  of  the  queen  was  a 
kind  of  gospel  or  glad  tidings,  and  ought  to  be  received 
as  such,  and  be  written  in  the  tablets  of  their  hearts."  * 

Our  forefathers  were  so  deeply  impressed  with 

*  Hume's  History  of  England,  vol.  iv.,  chap.  xliv.  The 
great  "case  of  monopolies  "  in  1602  conveyed  a  somewhat 
different  impression  concerning  the  subserviency  of  the 
English  citizen,  for  it  was  at  that  time  and  place  distinctly 
asserted  that  "Commonweals  are  not  made  for  Kings,  but 
Kings  for  Commonweals."  See  William  Noy,  Reports  and 
Cases,  2d  ed.,  London,  1669,  p.  178;  cf.  also  p.  174. 

27 


MONOPOLIES    AND    TRUSTS 

the  evils  which  they  had  suffered  at  the  hands  of 
the  monopolists  in  old  England  that  in  the  Bills  of 
Rights  and  elsewhere  in  the  early  constitutions  of 
our  commonwealths  they  frequently  inserted  severe 
denunciations  of  monopolies,  and  prohibited  them 
unqualifiedly;  and  these  declarations  and  prohibi- 
tions still  last  in  several  states.  Two  illustrations 
will  suffice.  We  read  the  following  utterance  in 
Article  39  of  the  Declaration  of  Rights  which 
forms  part  of  the  constitution  of  Maryland:  "  Mo- 
nopolies are  odious,  contrary  to  the  spirit  of  a  free 
government  and  the  principles  of  commerce,  and 
ought  not  to  be  suffered."  And  the  people  of 
Texas  still  cherish  Section  26  of  Article  I.  of  their 
constitution,  which  among  other  things  declares 
that  "  monopolies  are  contrary  to  the  genius  of  a 
free  government,  and  shall  never  be  allowed." 

While  the  spirit  of  monopoly  is  as  old  as  man, 
there  was  until  this  century  comparatively  little 
opportunity  for  monopoly  on  any  large  scale  save 
as  it  proceeded  from  express  grants  of  public  au- 
thority. These  grants  were  sometimes  made  for 
public  purposes,  as  Hume  intimates  was  frequently 
the  case  in  the  reign  of  Queen  Elizabeth,  and  some- 
times they  proceeded  from  downright  abuse  of 
monarchical  power,  and  were  granted  to  favorites 
of  royalty.  We  cannot  now  stop  to  discuss  their 
merits  and  demerits,  but  call  attention  to  the  fact 
that  they  became  odious,  and  were  prohibited  both 
in  England  and  in  this  country,  exception  being 
made  of  patents,  copyrights,  and  trade-marks.    At 

28 


THE    IDEA    OF    MONOPOLY 

the  present  time,  however,  monopolies  proceed 
from  the  nature  of  industrial  society,  and  are  of  far 
greater  significance  in  our  economic  and  political 
life  than  ever  before.  The  really  serious  monopo- 
lies of  our  day  are  far  more  subtle,  and  have  for 
the  most  part  grown  up  outside  of  the  law,  and 
even  in  spite  of  the  law.  It  implies  a  failure  to 
recognize  the  most  obvious  social  facts  to  limit  the 
term  monopoly  to  exclusive  privileges  expressly 
granted  by  the  legislative  branch  of  government. 
It  is  one  thing  to  open  one's  eyes  and  see  the 
clear  facts  of  industrial  society;  it  is  another  thing 
to  seek  for  their  underlying  causes.  We  may  well 
classify  monopolies  in  accordance  with  their  source, 
but  we  may  not  without  serious  error  refuse  the 
term  monopoly  to  all  classes  of  monopolies  save 
those  granted  by  public  authority.  The  reluct- 
ance of  courts  to  extend  the  term  monopoly  is 
simply  another  illustration  of  the  well-known  but 
unfortunate  fact,  so  often  commented  on,  that  our 
law  has  not  kept  pace  in  its  development  with 
our  industrial  evolution.  Fortunately,  however, 
our  legal  authorities  begin  to  perceive  the  neces- 
sity of  an  extension  of  the  term  monopoly.  Thus 
Mr.  F.  H.  Cooke,  in  his  already  cited  Trade  and 
Labor  Combinations,  uses  these  words :  "  Within  a 
comparatively  recent  period  the  conception  of  a 
monopoly  has  been  extended  from  a  right  created 
by  government,  to  a  condition  produced  by  the  acts 
of  mere  individuals;  thus,  where  within  a  given 
area  all  sales  of  a  given  article  are  made  by  a  single 

29 


MONOPOLIES    AND    TRUSTS 

individual  or  set  of  individuals."*  And  in  a  foot- 
note he  adds  the  following  important  observation, 
including  a  quotation  from  a  decision  of  a  Federal 
court :  "  So  revolutionary  has  been  the  recent  ex- 
tension of  the  meaning  attached  to  the  word  '  mo- 
nopoly '  that  there  is  even  a  tendency  to  wholly  ex- 
clude what  was  originally  covered  by  the  term. 
With  reference  to  the  use  of  the  term  '  monopo- 
lize' in  the  Federal  and  Louisiana  anti-  trust  acts, 
it  is  said  in  American  Biscuit  &  Manufacturing 
Company  vs.  Klotz,  44  Fed.  Rep.,  721  (Circuit 
Court,  Louisiana,  1891):  'In  construing  the  Fed- 
eral and  State  statutes  we  exclude  from  consid- 
eration all  monopolies  which  exist  by  legislative 
grant;  for  we  think  the  word  "monopolize"  cannot 
be  intended  to  be  used  with  reference  to  the  ac- 
quisition of  exclusive  rights  under  government  con- 
cession, but  that  the  law-maker  has  used  the  word 
to  mean  "to  aggregate"  or  "concentrate"  in  the 
hands  of  few,  practically,  and  as  a  matter  of  fact, 
and  according  to  the  known  results  of  human  ac- 
tion, to  the  exclusion  of  others.'  " 

It  is,  however,  going  to  an  opposite  extreme  to 
refuse  the  term  monopolies  to  "  the  acquisition  of 
exclusive  rights  under  government  concession."  A 
particular  statute  may  have  required  this  limita- 
tion, but  in  the  nature  of  things  there  is  no  pro- 
priety in  limiting  thus  arbitrarily  the  meaning  of 
words.     It  is  confounding  two  orders  of  inquiry  to 

*  Cooke,  /.  c,  part  ii.,  §  18,  pp.  94,  95. 
30 


THE    IDEA    OF    MONOPOLY 

say  that  a  word  stands  for  such  and  such  ideas,  and 
then  to  refuse  the  word-sign  to  those  ideas  when 
they  operate  in  a  given  manner — that  is  to  say,  bene- 
ficially or  injuriously.  We  must  let  the  term  stand 
for  a  clear  and  definite  idea,  and  when  we  have  de- 
cided what  the  nature  of  the  idea  is,  we  may  then 
endeavor  to  ascertain  under  what  circumstances  the 
thing  described  operates  advantageously,  and  under 
what  circumstances,  disadvantageously.  We  have 
no  right  to  assume  without  inquiry  that  monop- 
olies are  either  good  or  bad.  It  is  precisely  this 
sort  of  assumption  that  is  responsible  for  the  un- 
satisfactory progress  which  we  have  made  in  the 
discussion  of  monopolies,  when  we  consider  this 
discussion  either  in  its  immediately  practical  or  its 
purely  scientific  aspects.  There  is  thus  no  pro- 
priety in  saying  that  patents  or  copyrights  are  not 
monopolies,  for  their  essential  idea  is  precisely  mo- 
nopoly ;  and,  similarly,  there  is  no  propriety  in  us- 
ing the  term  virtual  monopolies  for  monopolies  not 
based  on  government  concession.  Likewise,  the 
limitation  of  monopoly,  as  by  Coke  and  Blackstone, 
to  old  pursuits  or  businesses,  making  monopoly  in- 
clude only  a  grant  "  whereby  the  subject  in  general 
is  restrained  from  the  liberty  of  manufacturing  or 
trading  which  he  had  before,"  is  purely  arbitrary 
and  unscientific. 

We  must  anticipate  our  classification  of  monopo- 
lies sufficiently  to  state  that  we  have  partial  monop- 
olies as  well  as  complete  monopolies,  as  this  state- 
ment adds  to  the  fulness  of  our  idea  of  the  term. 

3i 


MONOPOLIES    AND    TRUSTS 

We  have  a  partial  monopoly  where  there  is  a  unified 
control  over  a  considerable  portion  of  the  industrial 
field,  but  not  over  a  sufficient  portion  to  give  com- 
plete domination  of  the  whole  field.  It  can  easily 
be  understood  that  if  ninety  per  cent,  of  a  given 
business,  but  no  smaller  percentage,  would  afford 
control  over  the  whole  business,  eighty  per  cent., 
while  it  would  not  be  sufficient  for  domination, 
might  carry  with  it  an  advantage  to  the  person  or 
persons  enjoying  unified  control  over  the  eighty 
per  cent.,  yielding  an  excess  above  competitive  re- 
turns which  we  may  properly  designate  as  one  sort 
of  surplus  value.  Businesses  must  often  be  in  this 
position,  and  a  monopoly  may  be  obliged  to  go 
through  several  stages  of  partial  monopoly  before 
it  reaches  a  position  where  it  can  exercise  unified 
control  over  the  entire  business. 

But  we  must  distinguish  sharply  between  a  con- 
dition of  monopoly  and  other  conditions,  if  we  are 
to  think  clearly  and  accurately.  One  thing  which 
does  not  yield  monopoly  is  mere  limitation  of  sup- 
ply, and  it  is  strange  that  even  an  economist  of 
the  ability  of  John  Stuart  Mill  should  have  found 
the  essential  feature  of  monopoly  in  this  limitation ; 
for  this  at  once  makes  monopoly  cover  the  entire 
field  of  economic  activity,  inasmuch  as  economic 
activity  is  for  the  acquisition  of  valuable  things, 
and  things  lack  value  whenever  their  supply  is 
adequate  for  the  satisfaction  of  all  wants.  It  is 
only  things  limited  in  proportion  to  human  desires 
that  have  value. 

32 


THE    IDEA    OF    MONOPOLY 

Nor  may  we  say  that  a  valuable  thing  is  monop- 
olized because  its  supply  is  limited  and  also  grad- 
ed in  quality.  Land  exists  in  quantities  to  which 
physical  nature  has  assigned  limits,  and  the  supply 
of  land  exists  in  grades  varying  in  fertility  and  de- 
sirability of  situation,  and  as  a  consequence  of  this 
gradation  we  have  the  rent  of  land.  Land  is  not, 
however,  a  monopoly,  and  it  is  misleading  to  speak 
of  it  as  a  natural  monopoly.  Nowhere  do  we  find 
monopoly  either  in  the  ownership  or  in  the  culti- 
vation of  land,  but  everywhere  competition — com- 
petition among  unequals,  to  be  sure,  but  still  com- 
petition. As  we  have  already  seen  in  a  quotation 
from  John  Stuart  Mill,  a  unified  control  over  land 
would  carry  with  it  the  entire  subjugation  of  all 
non-landowning  classes.*  *- 

Land-rent  is  a  differential  gain,  a  gain  due  to  the 
superiority  of  the  land  owned  by  rent-receivers  over 
that  cultivated  by  those  who  are  making  use  of 
land  which  affords  nothing  beyond  returns  to  labor 

*  The  Bible  describes  the  outcome  of  a  monopoly  in  food 
supply  in  the  account  given  of  the  operations  of  Pharaoh 
under  the  guidance  of  Joseph.  All  the  money  in  the  land 
was  first  given  for  food,  "  and  Joseph  brought  the  money 
into  Pharaoh's  house."  The  people  of  Egypt  next  ex- 
changed all  their  herds  of  cattle  for  food,  and  then  they 
said  to  Joseph :  "  Buy  us  and  our  land  for  bread,  and  we 
and  our  land  will  be  servants  unto  Pharaoh :  and  give  us 
seed,  that  we  may  live,  and  not  die,  that  the  land  be  not 
desolate."  Then  it  came  to  pass  that  the  "  land  became 
Pharaoh's,"  and  thereafter  he  had  a  fifth  part  of  its  prod- 
uce.— Genesis,  chap,  xlvii. 

C  33 


MONOPOLIES    AND    TRUSTS 

and  to  capital.  Now  we  must  distinguish  between 
the  broad  concept  of  differential  gains  enjoyed  by 
those  in  competitive  pursuits,  and  the  monopolistic 
gains  which  are  based  on  the  absence  of  competi- 
tion. 

Just  as  sharply  must  we  distinguish  between  com- 
petitive businesses  of  large  magnitude  and  monop- 
olies. Department-stores  in  no  city  in  the  world 
enjoy  monopolies,  but  are  subjected  to  the  steady, 
permanent  pressure  of  competition.  There  are 
those  who  call  every  business  operating  on  a  vast 
scale  monopoly,  and  would  put  in  the  same  eco- 
nomic category  a  gas-works  without  a  competitor 
and  a  huge  retail  dry -goods  establishment  with 
rivals  at  every  hand,  ready  to  seize  every  oppor- 
tunity for  an  advantage  over  it  and  certain  to  ruin 
it  if  its  managers  relax  their  intense  activity  and 
watchfulness.*  This  implies  a  confusion  of  thought 
which  must  be  removed  before  popular  discussions 
of  monopolies  can  become  fruitful.  It  may  or  may 
not  be  true  that  a  mammoth  department-store  is  a 
serious  evil ;  with  that  we  are  not  now  concerned  ; 
we  wish  to  make  clear  that  it  is  not  a  monopoly, 
precisely  because  competition  and  monopoly  are 
opposites. 

*  What  could  appear  to  be  more  solid  than  the  immense 
business  which  Mr.  A.  T.  Stewart  a  quarter  of  a  century 
ago  had  built  up  in  New  York  city !  How  quickly  after 
his  death  did  it  melt  away  in  less  competent  hands !  And 
how  different  from  a  gas  monopoly,  due  not  to  individual 
capacity,  but  to  the  nature  of  the  business  ! 

34 


THE    IDEA    OF    MONOPOLY 

Furthermore,  we  must  sharply  distinguish  be- 
tween mere  combination  and  monopoly,  for  com- 
bination of  every  sort  is  called  monopoly  in  popular 
parlance,  however  severe  the  competition  may  be 
under  which  the  combination  works.  For  example, 
the  Grape-growers'  Union  in  Chautauqua  county,  in 
western  New  York,  has  been  called  a  monopoly,  al- 
though during  the  period  of  its  existence,  the  com- 
petition among  grape-growers  has  been  so  severe 
that  the  price  has  been  below  cost  the  greater  part 
of  the  time. 

Again,  it  is  essential  to  emphasize  the  fact  that 
we  may  have  substitutes  for  monopolized  services 
and  commodities.  Perhaps  the  only  case  in  which 
substitution  would  be  impossible  would  be  that  of 
the  entire  food  supply.  If  the  land-owning  or  cul- 
tivating class  could  combine,  they  could  monopo- 
lize the  entire  food  supply ;  and  for  this  there 
would  be  no  substitute.  When  there  is  a  substitute 
for  an  article,  the  article  may  be  monopolized  just 
as  well,  and  that  does  not  interfere  with  the  concept. 
If  we  have  a  complete  monopoly  of  the  street-car 
traffic,  it  does  not  follow  that  there  may  not  be 
substitutes  for  the  use  of  the  street-cars.  You  may 
walk,  if  you  please  ;  you  may  ride  in  a  cab,  if  you 
please.  But  it  is  contrary  to  the  idea  of  monopoly 
to  say  that  an  article  is  not  monopolized  because 
such  and  such  substitutes  are  used  for  it.  The  use 
of  substitutes  is  consistent  with  monopoly,  and  we 
nearly  always  have  them.  For  almost  anything  we 
can  think  of,  there  is  some  sort  of  a  substitute  more 

35 


MONOPOLIES    AND    TRUSTS 

or  less  perfect,  and  the  use  of  substitutes  furnishes 
one  of  the  limits  to  the  power  of  the  monopolist. 
In  the  consideration  of  monopoly  we  have  to  ask, 
what  are  the  substitutes,  and  how  effective  are 
they? 

Finally,  we  must  consider  briefly  the  use  of  the 
word  monopoly  in  economics  to  mean  unified  con- 
trol. First  of  all,  in  this  connection,  a  personal 
word.  The  present  writer  uses  the  word  monop- 
oly for  unified  control  in  his  Problems  of  To-day, 
published  in  1888,  but  in  that  work  he  follows 
Mill  in  the  mistake  of  calling  land  a  natural  mo- 
nopoly. This,  however,  is  out  of  harmony  with 
the  rest  of  the  discussion  in  the  Problems  of  To- 
day ;  for  it  is  there  said,  "  there  is  one  natural 
monopoly  which  stands  apart  by  itself  with  pe- 
culiar qualities.  It  is  land."  Later  in  the  same 
book  (p.  124),  it  is  said,  "  For  one  man  to  attempt 
to  get  a  monopoly  in  farming  is  an  absurdity." 
Steady,  permanent  pressure  of  competition  is  made 
decisive. 

Then,  in  the  Introduction  to  Political  Economy 
(p.  161),  written  in  the  following  year  (1889),  land 
is  ruled  out  in  so  many  words.  It  is  said  of  land, 
"it  is  a  limited  factor,  but  in  the  ownership  or 
management  of  land  there  is  no  inevitable  tend- 
ency to  monopoly."  In  the  Outlines  of  Economics, 
published  in  1893,  this  definition  of  monopoly  is 
framed:  "Monopoly  is  nothing  else  than  a  busi- 
ness not  limited  by  competition.  A  monopoly 
results   whenever   one    competitor  enjoys  certain 

36 


THE    IDEA    OF    MONOPOLY 

advantages  which  the  other  competitors  cannot 
obtain,  and  the  process  of  competition  goes  on 
far  enough  to  drive  them  from  the  field."  That 
is  on  page  59,  and  on  page  295  the  same  defini- 
tion is  repeated.  Again,  land  is  expressly  ruled 
out,  and  the  idea  of  business  in  one  hand  is  made 
decisive. 

Then  the  writer's  ideas  of  monopoly  are  still 
further  formulated  in  the  magazine  Progress,  in  a 
series  of  articles  written  in  1898-99,  but  not  so  fully 
as  in  his  lectures  on  the  "  Distribution  of  Wealth," 
which  have  been  delivered  in  the  University  of 
Wisconsin  during  the  past  seven  years. 

This  same  idea  of  monopoly  is  given  by  Walras 
in  his  Pure  Economics,  second  edition,  1889.*  Wal- 
ras dwells  upon  the  absurdity  of  that  enlarged  idea 
of  monopoly  in  earlier  economic  writings,  which 
makes  it  cover  the  entire  industrial  field.  He  says 
that  Mill  and  others  claimed  that  it  means  scar- 
city, whereas,  if  it  did,  then,  of  course,  we  could 
not  have  value  without  monopoly,  as  value  implies 
scarcity. 

Professor  Lexis,  who  wrote  the  article  on  mo- 
nopoly in  the  Handworterbuch  der  Staatswissen- 
schaften,\  gives  a  characteristic  of  monopoly  which 
harmonizes  with  the  author's  concept,  although 
he  does  not  carry  it  out  consistently.     He  says  it 

*  The  writer  did  not  read  Walras,  however,  until  May, 
1899,  when  this  work  had  already  been  fully  developed  in 
its  essential  thoughts. 

t  Edited  by  Conrad,  vol.  iv.,  1892. 
37 


MONOPOLIES    AND    TRUSTS 

"  means  unified  tactics  with  respect  to  price."    But 
it  means  other  things  as  well.* 

*  The  purpose  of  the  latter  part  of  this  discussion  of  the 
use  of  the  word  monopoly  by  economists  is  to  bring  out 
certain  facts  of  scientific  interest  and  to  fix  certain  dates. 
For  a  further  word  on  this  subject,  see  the  Preface. 

It  may  be  well  to  remind  the  reader  again  that  differ- 
ences in  terminology  do  not  of  necessity  imply  differences 
in  essential  ideas.  While  the  author  regards  the  extension 
of  the  term  monopoly,  to  which  attention  has  been  called, 
as  unfortunate  both  in  its  theoretical  and  practical  con- 
sequences, he  is  not  by  any  means  opposing  all  that  has 
been  said  about  monopoly  by  the  economists  who  have  em- 
ployed monopoly  to  cover  so  many  things  ;  but,  on  the  con- 
trary, is  carrying  forward  and  developing  further  their  ex- 
cellent work. 

38 


CHAPTER  II 

THE  CLASSIFICATION    AND  CAUSES  OF 
MONOPOLIES 

As  our  first  step  in  the  discussion  of  monopolies 
is  the  definition  of  monopoly,  so  the  second  step  is 
the  classification  of  monopolies,  with  an  examina- 
tion of  their  causes.  What  we  need  here  as  else- 
where in  the  scientific  and  popular  discussions  of 
economic  problems  is  analysis,  for  the  tendency  in 
discussions  of  both  kinds  is  to  generalize  too  hasti- 
ly. The  inclination  is  to  say  that  monopolies  are 
bad,  or  perhaps  sometimes  a  desire  may  be  dis- 
covered to  say  that  on  the  whole  they  are  good. 
Analysis,  however,  may  reveal  such  differences  in 
monopolies  that  we  shall  be  able  to  say  little  if 
anything  applicable  to  all  monopolistic  businesses 
save  the  simple  statement  that  over  them  unified 
control  is  exercised — in  other  words,  that  they  are 
monopolies ! 

One  further  preliminary  observation  suggests 
itself — namely,  that  classification  of  monopolies  is 
not  only  based  upon  their  causes,  but  reveals  their 
causes ;  consequently  they  may  best  be  discussed 
together. 

39 


MONOPOLIES    AND    TRUSTS 

The  first  great  separation  of  monopolies  is  into 
two  main  classes,  and  it  has  regard  to  ownership 
and  the  direct  and  immediate  beneficiary.  The  two 
classes  are : 

A.  Public  Monopolies. 

B.  Private  Monopolies.* 

Public  Monopolies  are  those  businesses  which  are 
owned  and  operated  by  some  political  unit,  and  this 
political  unit  is  the  direct  and  immediate  beneficiary; 
in  other  words,  to  this  political  unit  in  the  first 
place  flow  all  the  benefits  of  monopoly.  A  Private 
Monopoly,  on  the  other  hand,  is  a  monopoly  owned 
and  operated  by  a  private  person;  it  may  be  a  natu- 
ral person — that  is,  a  human  being — or  some  associa- 
tion of  natural  persons,  as  a  partnership,  or  it  may 
be  the  artificial  person  called  a  private  corporation. 
In  this  case  the  first  and  immediate  beneficiary  of 
the  benefits  of  the  property  and  business  is  the 
private  person,  although  large  benefits  may  flow  to 
the  general  public. 

We  may  also  have  mixed  monopolies,  as  where  a 
political  unit  owns  monopolistic  property  which  is 
managed  by  a  private  person,  or  where  a  private 
person  owns  monopolistic  property,  which  is  man- 
aged by  a  public  agency.  The  former  case  is  illus- 
trated by  those  railways  owned  by  our  common- 

*  In  our  classifications  the  co-ordinate  classes  will  be  in- 
dicated by  the  same  letters  or  marks.  The  capital  letters 
will  indicate  the  chief  classes;  the  Roman  numerals,  classes 
subordinate  to  them ;  and  the  Arabic,  classes  subordinate 
to  those  indicated  by  Roman  numerals,  and  so  on. 

40 


CLASSIFICATION    AND    CAUSES 

wealths  or  cities*  and  operated  by  private  corpora- 
tions; the  latter  case  finds  illustration  in  privately 
owned  railways  operated  by  the  State.f 

There  are  private  corporations  which  have  what 
is  called  a  quasi-public  character,  because  the  busi- 
nesses owned  and  managed  by  them  are  of  vital 
importance  to  society  at  large,  and  because  soci- 
ety, through  government,  reserves  special  rights  of 
regulation  over  their  business  operations.  When, 
however,  these  businesses  are  monopolies,  they  fall 
within  the  class  of  private  monopolies.  They  are 
privately  owned,  and  the  benefits  of  private  prop- 
erty flow  directly  and  immediately  into  private 
pockets.:}:  It  is  believed  that  this  great  funda- 
mental distinction  between  public  and  private  mo- 
nopolies is  essential  both  to  clear  thinking  and  to 
sound  public  policy.  Whoever  undertakes  to  tell 
us  what  is  true  about  monopolies,  and  what  is 
wise  for  society  to  do  with  respect  to  monopolies, 
must  make  it  plain  whether  he  is  talking  about 
public  monopolies  or  whether  he  is  discussing  pri- 
vate monopolies. 

*  The  North  Carolina  railroad,  owned  by  North  Carolina, 
and  leased  to  the  Southern  Railway  Company,  and  the  Cin- 
cinnati Southern  railroad,  built  and  owned  by  Cincinnati, 
and  leased  to  the  Cincinnati,  New  Orleans,  and  Texas 
Pacific  Railway  Company,  afford  illustrations. 

t  This  formerly  happened  frequently  in  Prussia. 

I  Our  courts  protect  private  property  in  railways,  gas- 
works, etc.,  even  while  recognizing  that  they  have  public 
functions. 

4i 


MONOPOLIES    AND    TRUSTS 

The  second  classification  of  monopolies  is  made 
with  reference  to  the  source  of  monopoly- power, 
and  is  based  upon  a  different  principle  of  classifica- 
tion, so  that  this  second  classification  will  cut  across 
the  first.  We  have  again  two  main  classes,  and 
these  are: 

A.  Social  Monopolies.* 

B.  Natural  Monopolies. 

A  Social  Monopoly  is  a  monopoly  which  arises  out  of 
social  arrangements  and  is  an  expression  of  the  will 
of  society  as  a  whole,  through  government,  or  of  a 

*  Social  monopolies  are  often  called  artificial  monopo- 
lies, and  in  the  author's  previous  works  they  are  so  called; 
but  the  term  social  monopolies  appears  to  be  a  better  term 
than  artificial  monopolies,  because  the  word  artificial  carries 
with  it  a  certain  criticism,  which  anticipates  the  argument 
concerning  their  effects.  It  is  preferable  to  discuss  them 
hereafter  and  find  out  whether  they  are  objectionable  or 
not.  In  our  classification,  however,  it  is  better  not  to  imply 
a  reproach  unless  it  is  necessary;  but  in  some  cases  the 
term  itself  of  necessity  might  convey  a  reproach. 

The  term  social  monopolies,  like  all  terms  in  economics, 
is  more  or  less  arbitrary,  but  it  seems  to  point  to  the  essence 
of  these  monopolies  and  to  do  as  little  violence  to  the 
ordinary  usages  of  language  as  any  term  which  could  be 
employed. 

The  term  natural  monopolies  is  a  convenient  designa- 
tion, and  since  the  author's  Problems  of  To-day  appeared,  it 
has  become  so  widely  accepted  that  it  could  not  easily  be 
changed.  Shortly  after  the  appearance  of  that  book,  how- 
ever, he  was  reproached  by  economists  who  had  read  it 
carelessly,  because  they  thought  that  he  wished  to  place 
land  and  enterprises  like  gas-works  in  the  same  category ! 

42 


CLASSIFICATION    AND    CAUSES 

section  of  society  strong  enough  to  impose  its  will  on 
society.  A  Natural  Monopoly,  on  the  other  hand,  is 
a  monopoly  which  rests  back  on  natural  arrange- 
ments as  distinguished  from  social  arrangements. 

The  term  natural  here  is  used  in  its  well-under- 
stood and  customary  sense,  to  indicate  something 
external  to  man's  mind.  A  natural  monopoly  is 
one  which,  so  far  from  giving  expression  to  the  will 
of  society,  grows  up  apart  from  man's  will  and  de- 
sire, as  expressed  socially,  and  frequently  in  direct 
opposition  to  his  will  and  desire  thus  expressed. 

Social  monopolies  and  natural  monopolies  may 
be  divided  into  classes  and  sub-classes,  as  follows : 

A.   SOCIAL  MONOPOLIES. 

I.  General  Welfare  Monopolies. 

i.  Patents. 

2.  Copyrights. 

3.  Public  Consumption  Monopolies. 

4.  Trade-marks. 

5.  Fiscal  Monopolies. 

II.  Special  Privilege  Monopolies. 

1.  Those  based  on  Public  Favoritism. 

2.  Those  based  on  Private  Favoritism. 

B.   NATURAL  MONOPOLIES. 

I.  Those  arising  from  a  Limited  Supply  of  Raw 
Material. 

II.  Those  arising  from  Properties  Inherent  in  the 
Business. 

III.  Those  arising  from  Secrecy. 

43 


MONOPOLIES    AND    TRUSTS 

It  is  necessary  to  explain  further  the  various  mo- 
nopolies which  appear  in  this  second  classification, 
which  is  not  only  the  most  elaborate,  but,  for 
scientific  and  practical  purposes,  the  principal  classi- 
fication, when  once  we  have  thoroughly  grasped  the 
fundamental  distinction  between  public  monopolies 
and  private  monopolies. 

We  have  first,  then,  General  Welfare  Monopo- 
lies, those  monopolies  which  society,  through  gov- 
ernment, has  established  to  promote  the  general 
welfare.  Most  of  these  are  simple  enough.  We 
have  patents.  In  order  to  encourage  invention,  the 
government  grants  an  exclusive  right  to  the  use  of 
some  idea  for  a  limited  time.  The  evil  of  monopoly 
is  generally  acknowledged  by  the  advocates  of  the 
patent  system,  but  it  is  said  that  the  benefits  de- 
rived from  invention  are  a  sufficient  counterpoise  or 
offset ;  that  society  does  better  to  put  up  with  the 
evils  of  monopoly  of  the  idea  for  a  time,  with  the 
encouragement  to  invention  which  it  gives,  than  it 
would  to  refuse  thus  to  encourage  invention.  The 
monopoly  is  a  limited  one  in  time,  and  very  prop- 
erly so,  because  the  idea  itself  is  quite  largely  a  so- 
cial product.  We  can  trace  that  out  in  every  great 
invention.  That  is  the  reason  why  the  same  in- 
vention is  often  made  in  two  or  three  countries  at 
the  same  time.  A  given  stage  in  the  industrial  arts 
suggests  certain  improvements.  Men  are  working 
in  different  places  to  effect  these  improvements, 
and  two  or  three  at  the  same  time  frequently  hit 
upon  the  same  improvement.    If  these  two  or  three 

44 


CLASSIFICATION    AND    CAUSES 

had  not  made  the  invention,  it  would  have  been 
made  almost  invariably,  but  a  little  later  perhaps, 
by  others.  The  race  is  stimulated,  it  is  maintained, 
and,  on  the  basis  of  experience,  we  may  believe 
truly,  by  the  reward.  It  does  not  seem  quite  fair, 
in  one  way.  If  you  and  I  are  racing,  and  one  gets 
in  five  feet  ahead  of  the  other,  he  receives  all  the 
reward.  It  may  be  that  one  gets  his  invention  in 
just  a  few  days  ahead  of  the  other,  and  has  all  the 
reward,  but  nothing  better  has  yet  been  devised 
than  a  well -guarded  patent  system.  The  only 
thing  is  to  make  sure  that  it  protects  both  public 
and  private  interests.  But  the  remedies  for  abuses 
of  the  patent  system  will  be  discussed  briefly  when 
we  come  to  consider  remedies  for  the  evils  of  mo- 
nopolies. 

The  case  of  copyrights  is  somewhat  similar.  We 
need  not  dwell  upon  them  more  than  to  say  that 
they  interfere  less  with  industrial  liberty  than  do 
patents.  No  two  persons  can  produce  quite  the  same 
book ;  whereas  two  persons  can  make  precisely  the 
same  invention,  as  is  illustrated  by  the  telephone. 
The  Germans  do  not  acknowledge  the  claim  of  Bell 
or  of  Morse  to  the  telephone  or  the  telegraph,  as 
they  have  their  own  men  to  whom  they  attribute 
these  inventions;  and  without  any  desire  to  detract 
from  the  services  of  these  distinguished  Americans, 
it  must  be  frankly  admitted  that  it  is  difficult  to 
decide  to  whom  among  rival  aspirants  for  the  honor 
of  priority,  the  palm  is  to  be  awarded,  because  the 
inventions  were  made  at  about  the  same  time  in  the 

45 


MONOPOLIES    AND    TRUSTS 

United  States  and  Germany.  But  a  German  and 
an  American  never  wrote  the  same  book  or  com- 
posed the  same  piece  of  music,  because  variety 
along  these  lines  is  infinite.  At  the  same  time, 
there  are  some  who  claim  that  there  is  reason  why 
an  author  should  have  a  perpetual  right  conferred. 
But  this  view  is  not  sound.  Man's  intellect  is  a  social 
as  well  as  an  individual  product,  and  every  man's 
work  likewise  is  a  social  as  well  as  an  individual 
product.  We  could  not  have  a  Shakespeare  in 
Africa.  His  genius  was  largely  the  result  of  life  in 
England  at  a  certain  time.  So  it  is  with  the  work  of 
every  man,  and  if  we  were  to  make  copyrights  per- 
petual, we  would  then  allow  descendants  to  live 
upon  the  intellectual  product  of  a  man  who  is  dead 
and  gone.  As  a  witty  essayist  has  said,  had  per- 
petual copyrights  been  established  in  the  time  of 
Shakespeare,  we  would  still  be  paying  royalties  to 
multi-millionaire  heirs,  doubtless  Dukes  of  Shake- 
speare, for  the  privilege  of  reading  the  works  of  the 
immortal  bard,  although  the  sole  social  service  of 
these  heirs  consisted  in  being  born  into  this  world 
to  live  in  idle  luxury!  The  purpose  of  copyright 
is  to  reward  and  to  encourage  service,  and  not  to 
allow  remote  descendants  to  derive  a  support  from 
those  who  have  performed  this  service.  The  aim 
of  these  remarks  is  simply  to  show  what  society  as 
a  matter  of  fact  seeks  in  copyrights. 

Public  Consumption  Monopolies  are  monopolies 
designed  to  regulate  consumption  beneficially ; 
either  to  promote  some  desirable  consumption  or 

46 


CLASSIFICATION    AND    CAUSES 

to  restrict  and  confine  within  limits  deleterious 
consumption.  We  have  a  number  of  public 
consumption  monopolies.  Whiskey  and  alcoholic 
beverages  furnish  the  chief  illustration.  Thus  we 
have  the  so-called  alcohol  monopoly  in  Switzer- 
land, the  federal  government  having  a  monopoly 
of  the  manufacture*  and  wholesale  trade  in  dis- 
tilled liquors ;  that  its  aim  is  to  regulate  and  con- 
fine within  limits  the  traffic  in  distilled  spirits,  is 
made  manifest  when  we  learn  that  a  part  of  the 
governmental  profits  are  used  to  fight  the  alcohol 
evil  through  educational  measures.  The  South 
Carolina  dispensary  system  affords  another  illus- 
tration. As  is  well  known,  it  establishes  a  State 
monopoly  of  sales.  It  seems  to  be  gaining  favor 
and  making  headway.  It  is,  however,  simple  enough, 
and  we  need  not  dwell  upon  it  longer,  for  to  do  so 
would  carry  us  to  one  side  of  our  present  purpose.^ 
Trade-marks  are  of  more  significance  than  one 

*  The  Swiss  federal  government  may  make  contracts 
with  home  or  foreign  distillers  for  the  manufacture  of  dis- 
tilled liquors.  Cf.  Vincent's  State  and  Federal  Government 
in  Switzerland,  chap,  ix.,  and  also  pp.  223-27  of  part  iii. 
The  work  is  published  as  an  extra  volume  in  the  Johns 
Hopkins  University  Studies  in  Historical  and  Political 
Science. 

f  The  salt  monopoly  of  Zurich,  Switzerland,  maintained, 
not  for  fiscal  purposes,  but  to  insure  a  supply  of  pure  salt 
at  a  low  price,  and  the  opium  monopoly  maintained  by 
Japan  in  the  island  of  Formosa  in  order  gradually  to  stop 
the  use  of  opium  by  the  natives,  afford  further  illustrations 
of  public  consumption  monopolies. 

47 


MONOPOLIES    AND    TRUSTS 

who  has  not  examined  the  question  is  apt  to  sup- 
pose. If  one  examines  only  their  direct  and  im- 
mediate effects,  it  may  be  questioned  whether  they 
ought  to  be  placed  here.  In  one  sense,  they  are 
monopolies.  They  give  the  use  or  monopoly  of  a 
certain  sign  or  mark  to  distinguish  one's  own  pro- 
ductions. The  design  is  to  secure  to  the  individual 
the  fruits  of  his  enterprise  and  integrity ;  so  that  if 
a  man  builds  up  a  reputation  along  auy  line,  he  may 
enjoy  the  fruits  of  it,  and  another  may  not  step  in 
and  reap  the  benefits  from  a  certain  kind  of  goods 
which  have  value  because  they  have  been  excellent- 
ly manufactured  heretofore.  Of  course,  another 
person  may  build  up  another  class  of  goods,  and 
may  establish  value  for  another  trade-mark.  Any 
one  can  have  his  own  trade-mark.  It  is  monopoly 
only  in  a  certain  line,  marking  off  the  goods  of  one 
manufacturer. 

The  monopoly  which  a  manufacturer  may  enjoy 
for  goods  under  his  name  and  trade  -  mark  is  fre- 
quently of  an  enormous  value,  as  it  affords  a  large 
surplus  value,  and  the  basis  of  it  is  twofold.  The 
ordinary  consumer  is  a  poor  judge  of  the  quality  of 
most  commodities  and  is  extremely  timid  in  pur- 
chases ;  consequently  he  attributes  value  to  a  trade- 
mark which  in  his  experience  has  stood  for  honesty. 
Moreover,  custom  is  still  a  powerful  force,  and  we 
adhere  to  old  practices  in  our  purchases.  It  is  on 
this  account  that  jobbers  (wholesalers)  dislike  to 
purchase  commodities  bearing  the  name  and  trade- 
mark of  a  manufacturer,  for  this  would  enable  the 

48 


CLASSIFICATION    AND    CAUSES 

manufacturers  to  raise  prices  on  the  strength  of  a 
reputation  built  up  by  the  dealers  themselves.  The 
wholesale  dealers,  in  buying  bicycles,  for  example, 
will,  if  possible,  give  them  a  name  of  their  own, 
which  they  can  transfer  to  the  product  of  another 
manufacturer,  should  they  find  it  advantageous  to 
purchase  bicycles  elsewhere.  It  is  said  that  one  of 
the  largest  jobbers  in  Chicago  lost  a  great  deal  of 
money  because,  as  the  writer's  informant  said,  "  he 
was  caught  in  this  way."  The  jobber  in  this  case 
bought  and  sold  an  article  under  the  name  and 
trade-mark  of  a  manufacturer,  and  then,  when  his 
customers  demanded  this  particular  article,  the 
manufacturer  raised  his  prices.  Frequently  the 
jobber  is  forced  to  sell  goods  under  the  name  and 
trade-mark  of  the  producer,  but  he  does  so  unwill- 
ingly. All  this  serves  simply  to  illustrate  the  value 
of  well-known  distinguishing  marks  of  a  particular 
commodity.  If,  however,  the  privilege  which  this 
power  gives  is  long  abused,  it  is  likely  to  be  lost. 

Custom  in  connection  with  a  trade -mark  may 
serve  as  the  basis  of  at  least  a  temporary  monopoly. 
It  is  said  that  the  manufacturers  of  thread  have 
by  combination  established  what  may  be  termed  a 
complete  monopoly.  If  men  are  conservative, 
women  are  more  so ;  and  in  many  sections  of  the 
country,  retail  dealers  say  that  they  can  sell  only 
one  kind  of  thread,  whereas  in  a  different  section 
another  kind  alone  is  sought.  The  conservatism 
of  the  users  of  thread,  together  with  the  conditions 
under  which  the  business  is  carried  on,  makes  it 
d  49 


MONOPOLIES    AND    TRUSTS 

extremely  difficult  and  expensive  to  introduce  a  new 
kind.  A  gentleman  connected  with  a  very  large 
jobbing  house  gave  to  the  writer  this  amusing  illus- 
tration :  He  took  home  to  his  wife  a  new  kind  of 
thread  for  which  the  manufacturers  were  struggling 
to  secure  a  place  in  the  market.  His  wife  com- 
plained that  the  thread  broke  and  was  generally 
unsatisfactory.  He  then  removed  from  a  spool  to 
which  she  was  accustomed  the  familiar  label  with 
the  trade-mark,  affixed  it  to  a  spool  of  the  new  kind 
of  thread,  took  it  home  to  his  wife,  and  asked  her 
to  see  if  after  all  the  old  was  better  than  the  new. 
The  following  day  he  was  informed  that  the  old 
thread  did  not  break  and  was  decidedly  superior  in 
every  way  to  the  new!  This  is  not  to  be  dismissed 
as  something  merely  amusing,  for  it  presents  an 
important  psychological  element  of  monopoly. 

Fiscal  Monopolies  are  monopolies  established  for 
the  public  treasury.  We  have  to  do  here  simply 
with  a  method  of  raising  public  money.  The  best 
illustration  is  that  of  the  tobacco  monopoly  in 
France.  It  differs  from  the  monopoly  in  distilled 
spirits  in  Switzerland.  The  latter  was  not  estab- 
lished for  revenue  purposes.  The  tobacco  monop- 
oly was  established  for  revenue  purposes,  and  is  very 
successful.  It  raises  a  large  amount  of  revenue 
and  is  looked  upon  as  simply  one  way  of  taxing 
the  tobacco  business.  Another  illustration  would 
be  the  opium  monopoly  in  India.  Salt  is  a  favorite 
subject  of  fiscal  monopoly.  A  powder  monopoly 
has  existed  in  many  places,  although  that  had  an- 

50 


CLASSIFICATION    AND    CAUSES 

other  than  a  fiscal  purpose.  It  was  first  established 
in  order  to  insure  to  the  government  a  good  supply 
of  powder  for  military  purposes. 

We  come  now  to  the  second  main  class  of  social 
monopolies — namely,  Special  Privilege  Monopolies 
— and  take  up  first  those  based  on  Public  Favoritism. 
Our  first  sub-class,  then,  comprises  those  monopolies 
which  are  due  to  favoritism  of  some  sort  or  another 
on  the  part  of  government.  The  old  monopolies 
established  in  England  were  of  this  class,  inasmuch 
as  they  rested  back  on  a  grant  of  the  government. 
We  have  already  discussed  these  monopolies  suf- 
ficiently for  present  purposes,  and  we  know  that 
through  the  action  of  legislative  bodies  and  courts  in 
England  and  in  the  United  States,  and  also  through 
American  constitutional  enactments,  they  have 
passed  away.* 

Here  we  have  one  kind  of  special  privilege  mo- 
nopolies, but  that  kind  has  now  been  done  away 

*  It  would  be  interesting  to  read  a  fair  account  of  the  fight 
against  these  old  monopolies  based  on  public  or  govern- 
mental favoritism.  An  adequate  history  has  doubtless 
never  been  written,  but  when  one  is,  something  will  have 
to  be  said  about  Lord  Erskine's  services  as  described  in  his 
Life.  It  seems  that  the  universities  of  Oxford  and  Cam- 
bridge had  an  exclusive  right  to  publish  almanacs,  but  when 
an  action  was  brought  against  a  bookseller,  who,  in  defiance 
of  the  monopoly,  printed  better  almanacs  and  offered  them 
for  a  lower  price,  the  judges  declared  the  grant  of  the  mo- 
nopoly void.  When  a  bill  was  introduced  into  Parliament 
to  make  it  valid,  Erskine  appeared  as  counsel  against  it 
and  defeated  it  in  what  is  called  a  splendid  effort. 

5i 


MONOPOLIES    AND    TRUSTS 

with.  Of  course,  these  monopolies  were  not  always 
an  abuse  by  any  means.  The  monopoly  given  to 
the  East  India  Company  was  not  at  first  held  to  be 
an  abuse.  It  was  then  supposed  to  be  necessary  to 
have  a  monopoly  in  undertaking  anything  so  haz- 
ardous at  a  time  when  trade  with  a  remote  country 
was  so  full  of  risk  and  men  were  not  accustomed 
to  great  enterprises.  Sometimes  they  were  estab- 
lished for  the  sake  of  revenue.  Sometimes  there 
was  downright  abuse,  and  they  were  given  through 
the  favoritism  of  the  monarch  solely  for  his  own 
pleasure. 

Another  illustration  would  be  a  monopoly  found- 
ed upon  a  protective  tariff.  Whenever  a  monopoly 
has  this  basis,  it  is  an  abuse  of  the  idea  of  a  pro- 
tective tariff*,  because  protectionism  claims  to  re- 
strict competition,  but  not  to  cut  it  off. 

Far  more  serious,  however,  are  those  special  priv- 
ilege monopolies  which  rest  upon  private  favorit- 
ism. It  may  be  objected  to  the  use  of  the  term  so- 
cial monopolies  for  this  sub-class,  that  they  are  due 
to  private  favoritism,  but  are  not  social  monopolies 
in  the  sense  that  they  express  the  will  of  society. 
But  they  do  give  expression  to  the  will  of  a  class 
of  society  strong  enough  to  gain  its  purposes,  and 
society  is  responsible  inasmuch  as  society  is  com- 
petent to  prevent  them. 

It  is  favoritism  which  produces  the  chief  class  of 
special  privilege  monopolies,  especially  the  favorit- 
ism of  those  corporations  having  natural  monopo- 
lies.    Of  course,  we  have  especially  in  mind  the  fa- 

52 


CLASSIFICATION    AND    CAUSES 

voritism  of  the  railways.  Here  we  have  one  of  the 
chief  causes  of  monopolies.  Frequently  monopo- 
lies which  are  attributed  to  other  causes  are  trace- 
able, strictly  speaking,  to  private  favoritism.  This 
gives  us  a  partial  explanation  of  the  "  trusts,"  in  so 
far  as  these  have  secured  monopolies.  When  it  is 
said  that  monopolies  rest  upon  mere  mass  of  capi- 
tal, or  upon  special  skill,  it  will  probably  be  found, 
if  the  investigation  is  carried  far  enough,  that  they 
rest  upon  private  favoritism.  Professor  Emory  R. 
Johnson  makes  this  statement  regarding  the  sugar 
trust :  "  The  sugar  trust  has  been  established  be- 
cause Mr.  Havemeyer  has  great  sagacity,  and  has 
had  command  of  very  large  amounts  of  capital. 
The  sugar  trust  has  driven  competition  from  a  field 
where  it  was  strong,  and  holds  it  out  at  present  only 
by  a  very  sagacious  management  of  large  amounts 
of  capital."* 

The  present  author  does  not  believe  that  this  is 
the  correct  explanation  of  the  sugar  trust.  A  re- 
cent French  writer  attributes  it  to  the  tariff,f  as 
does  Mr.  Havemeyer  himself4  The  tariff  has 
doubtless  had  much  to  do  with  it,  but  the  author 

*  "  The  Relation  of  Taxation  to  Monopolies,"  in  The 
Annals  of  the  American  Academy  of  Political  and  Social 
Science,  for  March,  1894. 

f  M.  Paul  de  Rousiers,  in  his  excellent  work,  Les  Indus- 
tries Monopolisms  aux  Etats-Unis,  chap.  iv. 

\  In  his  testimony  at  Washington  before  the  Industrial 
Commission.  Of  course,  it  must  not  be  forgotten  that  at 
the  present  moment  there  is  severe  competition  in  sugar, 

53 


MONOPOLIES    AND    TRUSTS 

believes  that  the  railways  also  have  had  something 
to  do  with  it.  The  sugar  trust  has  been  in  the 
habit  of  quoting  two  prices  to  wholesale  dealers — 
one  at  the  refinery,  and  the  other  delivered  at  the 
wholesaler's  place  of  business.  Now  the  difference 
between  these  two  prices  has  been  less  than  the 
freight  which  the  wholesaler  would  have  to  pay,  in 
consequence  of  which  the  wholesaler  has  allowed  the 
trust  to  pay  the  freight.  The  facts  have  been  such 
that  they  convinced  one  of  the  large  jobbers  of  the 
country  —  the  writer's  informant — that  the  sugar 
trust  has  enjoyed  special  railway  rates  which  the 
wholesaler  could  not  secure. 

The  cattle  business  has  also  been  mentioned  as  a 
monopolized  industry;  it  is  not  wholly  a  monopoly, 
but  a  partial  monopoly,  and  rests  probably  upon 
special  rates  of  the  railway,  or  control  over  special 
terminal  facilities,  like  stock-yards.  It  is  significant 
that  the  president  of  the  Long  Island  Railroad 
stated  recently  in  a  public  address  at  Cornell  Uni- 
versity that  there  were  only  three  men  in  this  coun- 
try who  could  ship  wheat.  *  One  of  the  men  doubt- 
less referred  to  is  also  one  of  those  concerned  in 
the  cattle  business  who  have  something  which  en- 
ables them  to  hold  a  monopoly,  in  certain  parts  of 
the  country,  of  the  cattle  business. 

We  can  often  see  great  principles  at  work  in  a 
small  way ;  and  we  have  an  excellent  illustration  of 

*He  undoubtedly  referred  to  Armour,  Peavey,  and 
Councilman. 

54 


4 

CLASSIFICATION    AND    CAUSES 

this  private  favoritism  in  the  transportation  of  bag- 
gage to  and  from  railway  stations  in  large  cities. 
So  far  as  access  to  the  passengers  in  the  stations 
and  on  the  trains  is  concerned,  the  monopoly  is 
granted  to  some  one  individual  or  company,  and 
the  result  is  that  this  person,  to  make  a  moderate 
estimate,  frequently  asks  a  price  one  hundred  per 
cent,  in  excess  of  what  the  competitive  price  would 
be.  The  charge  made  by  such  a  monopoly  in  Chi- 
cago for  riding  in  a  very  slow  bus  from  one  railway 
station  to  another  is  fifty  cents,  while  twenty-five 
cents  would  be  a  very  fair  price  indeed.  Between 
some  points  in  Chicago  where  there  is  competition, 
one  can  ride  in  a  bus  for  five  cents,*  and  evidently 
a  profit  is  made  at  a  five-cent  fare.  Just  one  com- 
pany is  granted  the  privilege,  and  probably  one  of 
the  reasons  why  the  railways  now  have  ushers  in 
the  Chicago  stations  ready  to  direct  passengers, 
carry  luggage,  etc.,  is  to  make  sure  that  the  pas- 
sengers wanting  a  hack  or  bus  shall  be  directed  to 
those  having  the  monopoly.f 

We  come  now  to  Natural  Monopolies — those 
which  arise  from  natural  arrangements;  which  ex- 
ist, so  to  speak,  outside  of  the  social  will ;  those 

*  This  does  not  include  transfer  of  a  trunk,  as  the  fifty- 
cent  fare  does,  although  fifty  cents  is  charged  even  if  one 
has  no  trunk. 

t  This  distinction  between  businesses  which  are  natural 
monopolies  and  those  which  become  such  by  alliance  with 
natural  monopolies  is  pointed  out  in  chapter  xxx.  of  the 
author's  Problems  of  To-day,  which  appeared  in  1888. 

55 


MONOPOLIES    AND    TRUSTS 

monopolies  which  are  not  an  expression  of  the 
social  will,  but  which  very  frequently  exist  in  spite 
of  the  most  pronounced  social  efforts.  They  are 
natural  in  the  sense  that  they  are  outside  of  social 
arrangements  and  the  social  will. 

The  first  sub-class  comprises  monopolies  arising 
from  a  supply  of  the  raw  material  so  limited,  es- 
pecially geographically,  that  a  body  of  men  acting 
together  as  one  man  can  gain  control  over  the  en- 
tire supply.  In  such  a  case,  we  have  the  conditions 
of  monopoly,  and  if  private  favoritism  aids  these 
conditions  already  favorable,  the  tendency  to  mo- 
nopoly is  further  strengthened.  Anthracite  coal 
furnishes  the  best  illustration.  Anthracite  coal  is 
produced  only  in  a  very  limited  area.  The  best 
mines  are  restricted  to  one  section  of  Pennsylvania. 
But  favorable  as  these  natural  conditions  are,  it  has 
not  been  found  possible  to  establish  a  monopoly 
without  the  aid  of  the  railways,  and  when  the  rail- 
ways cease  to  act  in  harmony,  the  monopoly  in 
anthracite  coal  fails.  During  the  past  few  months 
it  has  been  said  that  the  combination  of  producers 
is  closer  and  more  effective,  but  it  is  simply  be- 
cause the  union  of  the  railways  with  the  coal  pro- 
ducers rests  upon  a  securer  basis. 

The  sources  of  crude  oil  are  spread  over  a  wider 
area  than  is  anthracite  coal,  there  being  in  addition 
to  other  sources  of  supply  the  two  great  centres  of 
production,  Pennsylvania  and  Ohio.  The  natural 
conditions  of  monopoly  are  less  favorable,  but  with 
the  aid  of  railways  and  other  transportation  lines, 

56 


CLASSIFICATION    AND    CAUSES 

there  is  now  going  forward  a  development  similar  to 
that  in  the  anthracite  coal  fields.  The  oil  business 
heretofore  has  for  a  portion  of  the  time  been  a  com- 
plete monopoly  so  far  as  refining  oil  is  concerned, 
but  there  has  not  been  a  monopoly  in  the  produc- 
tion of  crude  oil.  It  looks  now  as  if  we  would  reach 
a  monopoly  not  merely  in  the  refining  of  oil,  but  in 
the  production  of  oil  itself,  because  the  production 
is  limited  geographically.  Natural  gas  affords  an- 
other illustration.  Another  is  afforded  by  articles, 
in  barbarous  and  semi-barbarous  countries,  coming 
from  animals  and  plants  that  are  threatened  with 
extinction.  Here  the  inequality  in  resources  and 
in  capacities  between  highly  civilized  and  semi- 
civilized  nations  affords  special  facilities  in  build- 
ing up  monopolies.  It  is  because  the  semi-barbar- 
ous people  are  like  children.  They  are  ready  to  part 
with  natural  resources,  with  great  treasures,  for  any 
gewgaw  that  strikes  their  fancy.  Illustrations  in 
abundance  could  be  afforded,  if  there  were  space. 
It  is  said  that  ivory,  boxwood,  and  certain  other 
rare  materials,  the  supply  of  which  is  either  limited 
by  nature  or  is  in  the  hands  of  primitive  peoples, 
belong  to  this  class.  Of  course,  one  can  see  that 
under  certain  conditions  it  would  be  easy  to  estab- 
lish a  monopoly  over  the  source  of  supply  found  in 
a  semi-civilized  country.  All  that  would  be  neces- 
sary would  be  to  induce  these  children — for,  as  we 
have  said,  primitive  peoples  are  but  children — to 
part  with  their  treasures  for  a  song,  and  then  to  find 
some  way  to  keep  them  to  their  agreement,  either 

57 


MONOPOLIES    AND    TRUSTS 

through  a  home  government  or  through  some  out- 
side government  exercising  pressure  upon  them. 

This  suggests  one  point  of  some  importance,  and 
that  is  the  connection  between  monopoly  on  the 
one  hand,  and  on  the  other,  wealth -accumulation 
and  wealth-concentration.  We  have  to  ask  first  of 
all,  how  many  men  are  able  to  act  together  as  a 
unit  ?  The  larger  the  number  of  men  who  are  able 
to  act  together  as  a  unit,  the  more  easily  can  the 
monopoly  be  established.  Where  we  have  the  sup- 
ply limited  at  all,  if  a  sufficient  number  of  men  act 
together  they  can  establish  a  monopoly.  Also,  the 
greater  the  wealth  in  a  few  hands,  the  easier  it  is  to 
establish  a  monopoly,  because  then  the  number  of 
men  who  must  act  together  as  a  unit  is  correspond- 
ingly decreased.  It  is  at  least  conceivable  that  a 
comparatively  few  men  should  gain  ownership  of 
all  the  land  of  the  world  or  of  a  country,  provided 
the  people  remained  passive.  That,  however,  is  not 
anything  more  than  conceivable.  It  is  not  at  all 
probable.  Still,  in  this  way  the  concentration  of 
wealth  is  highly  favorable  to  monopoly.  Perhaps 
if  wealth  had  not  been  so  concentrated  in  this 
country  we  would  not  have  had  the  anthracite  coal 
monopoly,  and  there  would  be  far  less  prospect  of 
it  in  crude  oil  if  the  men  interested  in  refining  it 
had  not  such  enormous  wealth  that  they  are  able 
to  purchase  all  of  the  land  at  least  in  a  few  States. 
So  we  see  that  the  concentration  of  wealth  has 
something  to  do  with  monopoly.  The  writer  does 
not  admit,  however,  that  there  is  any  monopoly 

58 


CLASSIFICATION    AND    CAUSES 

which  is  founded  on  mass  of  capital ;  but  the  dis- 
cussion of  this  particular  question  is  deferred.  It 
is  mentioned  in  this  place  simply  to  prevent  mis- 
apprehension concerning  the  way  in  which,  it  is 
claimed,  that  concentration  of  wealth  promotes  mo- 
nopoly; it  is  concentration  of  wealth  in  conjunction 
with  other  favorable  circumstances.  We  must  at 
this  point  sharply  distinguish  between  two  quite 
different  things.  It  is  true  that  some  kinds  of  busi- 
ness have  reached  such  a  point  in  their  evolution 
that  they  require  a  large  mass  of  capital  for  their 
successful  operation.  The  businesses  of  refining 
oil  and  sugar  and  of  mining  anthracite  coal  afford 
illustrations.  It  is  an  entirely  different  thing  from 
what  is  here  admitted  to  claim  that  mass  of  capital 
gives  monoply. 

Next  we  take  up  those  monopolies  arising  from 
properties  inherent  in  the  business,  and  this  gives 
us  the  chief  class  of  natural  monopolies.  We  have 
here  the  highways  of  all  sorts,  but  especially  rail- 
ways with  their  terminal  facilities,  including  the 
grain  elevators  and  stock-yards;  canals;  the  post- 
office  ;  the  telegraph  lines,  the  telephones,  irriga- 
tion-works, harbors  ;  docks  ;  light  -  houses  ;  ferries  ; 
bridges;  local  rapid -transit  agencies;  gas-works, 
urban  water-works,  electric -light  plants,  etc.,  some 
of  them  national,  some  of  them  local  or  municipal 
monopolies. 

One  marked  distinction  must  be  observed  with 
respect  to  highways.  In  the  case  of  all  railways — 
where  the  transportation  is  over  fixed  rails  —  the 

59 


MONOPOLIES    AND    TRUSTS 

monopoly  includes  all  the  agencies  of  transporta- 
tion, whereas  in  the  case  of  ordinary  public  high- 
ways, for  the  use  of  which  toll  is  charged,  the  mo- 
nopoly is  restricted  to  the  ownership  and  manage- 
ment of  the  highway,  and  keen  competition  may 
exist  among  its  users.  The  difference  is  due  to 
technical  conditions,  for  in  the  case  of  railways  the 
use  must  be  under  unified  control,  whereas  in  the 
case  of  the  public  road,  the  use  may  be  thrown 
open  freely  to  all  the  world.  Thus  it  is  that  the 
express  business  over  railways  is  a  monopoly, 
whereas  in  cities  there  is  keen  competition  among 
those  who  carry  small  parcels  for  the  general  public. 

We  have  monopolies  so  far  as  the  natural  geo- 
graphical area  of  the  enterprise  is  concerned.  These 
different  businesses  have  different  natural  geo- 
graphical areas.  The  natural  geographical  area  of 
the  street-car  line  is  the  city.  It  is  the  same  with 
respect  to  lighting  enterprises.  The  natural  area 
of  railways  is  the  nation,  etc.  We  do  find  in  Ger- 
many that  the  area  of  railways  is  the  State  and  not 
the  nation,  but  that  is  secured  rather  by  artificial 
arrangement.  The  natural  geographical  area  of  rail- 
ways in  Germany  would  be  the  nation,  but  the  state 
jealousies  are  of  such  a  character  that  the  natural 
development  has  been  in  a  way  prevented.  The 
Prussian  railways  also  extend  outside  of  Prussia. 

We  notice  also  a  tendency  on  the  part  of  com- 
bination to  absorb  the  different  units,  illustrated  by 
the  tendency  of  a  few  men  to  get  control  of  the 
street  railways  in  different  parts  of  this  country ; 

60 


CLASSIFICATION    AND    CAUSES 

but  that  is  more  like  the  tendency  to  do  business 
on  a  large  scale.  This  appears  to  be  all  that  it  means, 
although  here  they  are  assisted  by  the  great  con- 
centration of  wealth.  It  does  not  seem  that  there 
is  any  natural  tendency  which  would  lead  to  the 
ownership  of  all  the  street  railways  in  the  country 
by  one  combination  of  men.  But  wealth  has  been 
so  accumulated  on  the  part  of  those  who  have  the 
street  railways  in  the  great  cities  of  the  country 
that  they  must  invest  their  money  in  some  way,  and 
they  naturally  turn  to  street  railways  elsewhere. 
It  is  possible  that  strikes  may  assist  men  to  gain 
control  of  the  railways  in  the  various  cities,  because 
men  may  be  sent  from  city  to  city  in  case  of  a  strike, 
and  so  the  great  combinations  may  utilize  their 
facilities  in  different  cities  to  break  down  strikes. 

The  peculiarities  of  these  monopolies  have  not  as 
yet  been  given  in  the  author's  present  treatment  of 
the  subject.  It  is  possible  to  revise  somewhat  the 
characteristic  features  of  these  monopolies  as  com- 
pared with  former  statements  and  to  simplify  them 
considerably.  Lord  Farrer,  in  his  work,  The  State 
in  Its  Relation  to  Trade,  mentions  five  main  char- 
acteristics of  natural  monopolies.  These  five  are 
quoted  in  the  author's  Problems  of  To-day ;  but  in 
his  Outlines  of  Economics  they  are  changed  some- 
what and  reduced  to  three.  It  is  there  stated  that 
the  chief  characteristics  of  natural  monopolies  of 
this  kind  are  these:  First,  that  the  service  or  com- 
modity makes  use  of  certain  peculiarly  favored  spots 
or  lines  of  land  ;  secondly,  that  it  is  furnished  in  con- 

61 


MONOPOLIES    AND    TRUSTS 

nection  with  the  plant  itself  —  railway  service,  for 
example,  cannot  be  shipped,  but  must  be  used  in 
connection  with  the  plant — if  it  could  be  shipped  as 
flour  can  be,  then  we  would  have  a  different  result ; 
and  thirdly,  that  the  returns  are  in  accordance  with 
the  law  of  increasing  returns  —  the  greater  the  out- 
put, the  larger  the  return.*  The  latter  produces  an 
inevitable  tendency  to  monopoly.  The  cheaper  the 
rate  at  which  an  increasing  output  can  be  furnished, 
the  greater  is  the  tendency  to  monopoly,  because 
whenever  two  competitors  unite,  they  can  furnish 
the  service  or  commodity  more  cheaply,  and  con- 
sequently there  is  always  a  gain  ;  in  the  case  of 
street  railways,  for  example,  there  is  a  very  decided 
gain,  which  is  the  inducement  to  combination.  Men 
are  in  business  for  the  sake  of  gain,  and  where  the 
law  of  increasing  returns  applies  to  their  business, 
there  always  stands  before  them  one  way  in  which 
they  can  increase  their  gains.  This  prospect  of  ad- 
ditional gain  is  like  a  magnet.  Ultimately  it  is 
found  to  overcome  all  other  obstacles.  Sooner  or 
later  it  comes  about  that  there  is  a  combination. 

But  there  is  an  objection  to  that  statement  of 
the  characteristic  features  of  these  natural  monop- 

*  It  is  only  just  to  state  in  this  connection  that  much 
credit  for  this  formulation  is  due  to  the  discussion  by  Pro- 
fessor Henry  C.  Adams  of  the  law  of  increasing  returns. 
Cf.  especially  his  monograph,  "  The  Relation  of  the  State 
to  Industrial  Action,"  in  vol.  i.  of  the  Publications  of  the 
American  Economic  Association.  Its  date  is  January, 
1887. 

62 


CLASSIFICATION    AND    CAUSES 

olies  which  is  found  in  the  Outlines  of  Economics. 
It  might  seem  from  the  statement  as  there  given 
that  we  have  to  do  with  three  independent  causes 
of  monopolies.  We  have  natural  monopolies,  the 
products  or  services  of  which  can  be  furnished  only 
in  connection  with  plants  occupying  peculiarly  fa- 
vored spots  or  lines  of  land,  because  here  we  have 
to  do  with  businesses  which  are  operated  far  more 
cheaply  when  brought  under  unified  control.  But 
do  we  find  the  law  of  increasing  returns  operating 
without  limit  in  these  cases?  If  so,  this  operation 
must  flow,  so  far  as  we  now  know,  from  mere  mass  of 
capital  with  its  economies,  and  this  is  not  admitted 
by  the  author  to  be  a  sufficient  cause  of  monopoly. 
It  is  now  possible  to  obviate  the  objection  men- 
tioned and  to  simplify  things  somewhat.  We  can 
say  that  we  have  monopolies  arising  from  the  in- 
herent characteristics  of  the  business,  whenever 
there  is  a  decided  gain  resulting  from  the  combina- 
tion of  all  those  engaged  in  it.  Whenever  there  is 
a  decided  and  continuous  increment  in  gain  result- 
ing from  combination,  we  have  a  tendency  to  mo- 
nopoly which  will  overcome  all  obstacles.  It  is  this 
increment  in  gain  which  is  the  cause  of  monopoly. 
Now  that  cause  operates  when  we  have  to  do  with 
businesses  which  occupy  peculiarly  favored  spots  or 
lines  of  land,  furnishing  services  or  commodities 
which  must  be  used  in  connection  with  the  plant. 
We  have,  then,  one  single  cause,  and  the  circum- 
stances under  which  this  cause  clearly  acts  are 
stated ;    whether  it  acts  beyond  these  or  not  is  a 

63 


MONOPOLIES    AND    TRUSTS 

matter  of  controversy.    Under  these  circumstances, 
however,  this  cause  surely  does  act. 

It  is  believed  that  the  statement  of  the  law  of 
monopoly  here  given  is  superior  to  the  older  state- 
ment, that  increasing  returns  produce  monopoly, 
as  it  is  more  general  and  avoids  some  of  the  diffi- 
culties which  arise  in  connection  with  the  law  as 
previously  formulated.  It  is  the  clearly  marked 
increment  in  gain  arising  from  combination  pro- 
ceeding even  to  the  point  of  complete  unity  which 
produces  monopoly  in  any  particular  kind  of  busi- 
ness. The  causes  of  the  advantages  of  monopo- 
lized over  competitive  business  are  more  or  less 
various.  Let  us  take  the  case  of  the  telephone. 
The  importance  of  unity  must  sooner  or  later 
overcome  all  obstacles  standing  in  the  way  of  com- 
bination of  the  various  telephone  interests,  inas- 
much as  the  gains  to  be  secured  operate  unceasing- 
ly like  a  law  of  nature,  and  ultimately  must  prevail. 
And  why?  it  may  be  asked.  It  is  because  men 
are  rational  beings  and  prefer  to  do  things  in  a 
superior  way  rather  than  in  an  inferior  one.  Two 
telephone  companies  cannot  perform  the  same  ser- 
vice which  one  can  perform,  inasmuch  as  complete 
unity  is  lacking.  The  object  of  the  telephone  is  to 
bring  people  together,  and  the  more  completely  it 
does  this,  the  better  it  performs  its  functions.  Two 
or  more  competing  telephone  plants,  however,  sep- 
arate people,  and  thus  operate  antagonistically  to 
the  purpose  for  which  the  telephone  was  estab- 
lished.    Ordinarily  the  increase  in  business  will  be 

64 


CLASSIFICATION    AND    CAUSES 

done  at  a  relatively  lower  rate,  at  least  up  to  a  very- 
large  production,  but  monopoly  is  not  dependent 
exclusively  upon  increasing  returns,  and  even  if  it 
be  true  that  additional  telephone  service,  when 
once  a  given  point  has  been  reached,  involves  a 
relative  increase  in  expense,  the  advantages  and 
increment  in  gain  from  combination  still  con- 
tinue.* 

Many  small  cities  now  exhibit  the  disadvantages 
of  competition  in  the  telephone  business.  New 
companies  have  practically  dislodged  an  old  mo- 
nopoly so  far  as  local  business  is  concerned,  but 
the  old  company,  alone  having  general  long-dis- 
tance connections,  holds  the  field,  and  those  using 
the  new  service  are,  as  a  rule,  put  to  inconvenience 
when  they  are  obliged  to  telephone  to  a  distant 
point. 

But  does  the  law  of  increasing  returns  operate 
without  limit  in  any  one  of  the  kinds  of  business 
here  under  consideration?  It  has  never  been 
proved  that  such  is  the  case.  The  law  of  increas- 
ing returns  operates  up  to  the  point  of  the  full 
utilization  of  the  existing  plant  of  any  one  of  these 
businesses,  and  very  often  that  includes  an  indef- 
initely large  increase  in  the  quantity  of  production; 
but  when  we  go  beyond  this  point,  expenses  may 
increase  even  relatively.  Let  us  suppose  that  we 
have  a  dynamo  capable  of  running  four  hundred 

*  The  alleged   increasing  expense  attending  increasing 
telephone  services  receives  comment  on  pp.  78-79. 
E  65 


MONOPOLIES  AND    TRUSTS 

lights  and  that  only  two  hundred  are  demanded  at 
a  given  moment,  but  that  later  the  demand  in- 
creases until  four  hundred  are  required :  in  such  a 
case  the  law  of  increasing  returns  holds  until  the 
four  hundred  are  demanded ;  but  if  the  consump- 
tion still  increases  until  five  hundred  are  called  for, 
a  new  dynamo  must  be  procured  and  expenses  may 
be  relatively  greater  until  consumption  again  ap- 
proaches the  point  of  full  utilization  of  plant.  A 
street  railway  company  can  do  business  with  de- 
creasing expenses  per  unit  of  traffic,  until  its  exist- 
ing plant  is  fully  utilized  ;  but  an  enlargement  of 
plant  then  involves  a  great  outlay,  and  may  in- 
crease the  expense  per  unit  of  traffic.  It  neces- 
sitates a  large  additional  investment  of  capital  to 
replace  occasional  switches  with  double  tracks,  and 
to  increase  correspondingly  the  supply  of  power  for 
operation.  The  expense  of  the  unit  of  traffic  must 
at  first  be  increased  thereby,  unless  the  traffic  is  at 
once  greatly  enlarged.  The  probability  in  the  case 
favors  a  relatively  greater  expense  of  carrying  on 
the  business  for  some  time,  this  increase  in  relative 
expense  gradually  diminishing  as  the  point  of  full 
utilization  is  again  approached;  but  by  the  time 
this  is  reached,  the  relative  expense  may  possibly 
be  lower  than  it  was  before  the  plant  was  enlarged, 
although  not  necessarily  so.  Great  profits  come 
more  from  a  vast  business  than  from  the  decreased 
relative  expenses. 

Of  course,  there  are  those  who  claim  that  there  is 
always  an  increment  in  gain  resulting  from  combi- 

66 


CLASSIFICATION    AND    CAUSES 

nation.  That  is  the  socialist  point  of  view,  but  it  is 
not  admitted  by  the  writer.  It  is  admitted  that 
we  have  an  increment  in  gain  under  the  circum- 
stances which  have  been  mentioned,  but  not  under 
all  circumstances.  It  is  right  at  this  point  that 
controversy  arises. 

Whenever  there  is  a  decided  and  clearly  marked 
increment  in  gain  resulting  from  combination,  then 
we  have  a  tendency  towards  monopoly ;  but  it  is 
maintained  by  the  author  that  in  agriculture,  com- 
merce (retail  and  wholesale),  and  in  manufactures, 
that  cause  of  monopoly  does  not  obtain.  It  is 
claimed,  for  example,  that  it  is  not  clear  that  there 
would  be  a  decided  increment  in  gain  if  Marshall 
Field  &  Co.  and  other  large  retail  dealers  in  the 
same  line  in  Chicago,  or  if  Altman  &  Company  and 
Wanamaker  in  New  York  city,  should  combine. 
The  result  would  be  doubtful,  but  it  is  probable 
that  there  would  not  be  an  increment  in  gain,  but  a 
loss,  if  they  should  combine.*     But  when  we  have 

*  First  of  all,  we  observe  that  these  firms  do  not  combine, 
and  do  not  even  seek  combination.  As  their  managers  are 
shrewd  business  men,  avowedly  seeking  gain,  the  absence 
of  attempted  combination  suggests  that  in  their  opinion 
nothing  would  be  gained  thereby.  Each  firm  has  its  own 
facilities  and  its  own  customers,  and  it  would  be  scarcely 
possible  to  keep  all  these  under  consolidation.  Should 
they  combine  their  resources  into  a  still  more  gigantic  en- 
terprise, the  difficulty  of  unified  management  would  be  in- 
creased ;  and  how  could  they  prevent  new  enterprises  of 
magnitude  from  springing  up?  These  are  a  few  of  the 
considerations  which  occur  in  this  connection. 

67 


MONOPOLIES    AND    TRUSTS 

a  combination  of  competing  gas  companies  there  is 
no  doubt  about  the  result. 

We  do  not  need  in  this  place  to  enter  upon  so 
exhaustive  a  discussion  of  the  monopolistic  evolu- 
tion of  businesses  of  this  particular  class  as  would 
otherwise  be  necessary,  inasmuch  as  this  subject  has 
received  frequent  treatment  by  the  author  as  well 
as  by  many  others  ;  and  it  is  now  generally  consid- 
ered that  in  all  businesses  of  the  kind  mentioned 
there  may  be  discovered  a  clear  movement  in  the 
direction  of  monopoly  which  is  bound  ultimately 
to  prevail  over  all  obstacles.  If  we  take  them  up 
and  examine  them  one  by  one,  we  reach  the  same 
result  in  each  case.  A  thousand  efforts  to  secure 
competition  in  the  gas  business  have  not  given 
one  success  as  yet ;  a  hundred  efforts  in  England 
and  the  United  States  to  secure  effective  competi- 
tion in  the  telegraph  business  have  proved  failures. 
But  without  examining  the  thousands  of  futile 
efforts  to  introduce  permanent  competition  into 
the  field  of  natural  monopolies,  let  us  proceed  at 
once  to  that  business  which  offers  the  most  serious 
difficulties  to  the  student — namely,  the  railway 
business.  When  it  is  said  that  railways  offer  the 
most  serious  difficulties  to  the  student  who  accepts 
the  proposition  that  in  their  ownership  and  opera- 
tion they  are  natural  monopolies,  reference  is 
made  to  the  student  in  the  United  States ;  for  in 
other  countries — like  England,  France,  and  Ger- 
many— the  railways  seem  to  be  an  unusually  clear 
case.     In  Germany,  a  serious  effort  was  made  to 

68 


CLASSIFICATION    AND    CAUSES 

secure  competition,  the  government  owning  some 
of  the  railways  and  operating  them,  and  allowing 
private  companies  to  own  and  operate  others, 
though  under  strict  supervision.  This  is  a  plan 
which  has  found  advocates  in  our  own  country, 
but  it  was  not  successful  in  Germany.  In  fact,  the 
difficulties  of  competition  in  the  railway  business 
between  the  government  and  private  corporations 
are  so  enormous — indeed  insuperable — that  either 
the  government  or  the  private  corporations  must 
finally  abandon  the  field.  If  the  government  ser- 
vice is  poor  and  its  competition  ineffective,  the 
result  is  general  dissatisfaction.  If  the  government 
has  an  excellent  administrative  system  and  com- 
petes seriously  with  private  companies,  it  can 
hardly  fail  to  drive  them  out  of  the  field,  because 
its  resources  are  so  much  vaster.  Even  if  the  gov- 
ernment does  not  push  its  superior  capacity  so  far 
as  a  private  corporation  would,  but  allows  its  rivals 
to  exist,  those  who  feel  its  competition  keenly  will 
complain  bitterly  of  what  they  regard  as  oppressive 
action  on  the  part  of  the  government  which  they 
themselves  help  to  sustain.  What  might  have  been 
foreseen,  and  undoubtedly  was  foreseen  by  deep 
thinkers,  actually  happened  in  Germany.  The  pri- 
vate lines  were  purchased,  and  have  since  then  been 
operated  as  a  part  of  the  government  system.  In 
France  and  in  England,  there  have  been  many  pri- 
vate companies,  and  there  appears  to  have  been  at 
one  time,  in  both  these  countries,  more  or  less  faith 
in  the  possibility  of  effective  competition  in  the  rail- 

69 


MONOPOLIES    AND    TRUSTS 

way  business.  As  a  result  of  industrial  evolution, 
however,  in  each  of  these  countries  there  has  been 
a  consolidation  of  all  the  lines  into  a  few  great  sys- 
tems, which,  in  the  main,  act  harmoniously  together, 
pursuing  a  unified  policy  with  respect  to  price. 

Before  turning  from  these  two  countries,  it  may 
be  observed  that  France  offers  an  illustration  of  the 
proposition  which  was  laid  down  in  the  discussion 
of  the  German  experience.  There  has  been  a  slight 
attempt  at  competition  through  the  ownership  and 
operation  of  lines  by  the  government.  The  best 
lines,  however,  appear  to  have  always  been  private 
property,  and  there  is  no  evidence  of  any  effective, 
determined  competition  on  the  part  of  the  govern- 
ment. The  consequence  has  been  dissatisfaction 
with  the  government  service. 

Turning  now  to  our  own  country,  we  find  that 
there  are  some  things  in  the  United  States  which 
look  like  really  effective  competition  in  the  railway 
business.  Nevertheless,  it  is  a  fact  well  known  to 
all  who  are  familiar  with  this  business  that  the  most 
marked  feature  of  its  evolution  in  our  own  country 
has  been  consolidation. 

The  railways  of  our  country  are  gradually  being 
combined  into  a  few  great  systems,  acting  together 
with  increasing  harmony.  Precisely  because  the 
country  is  new  and  vast;  because  the  problems  pre- 
sented to  the  owners  and  managers  of  railways  are 
immensely  complicated ;  and  because  the  railway 
development  is  even  yet  far  from  complete,  freight 
wars  and  passenger  -  rate  wars  break  out  from  time 

70 


CLASSIFICATION    AND    CAUSES 

to  time.  Even  in  the  case  of  railways,  however,  it 
is  to  be  observed  that  popular  parlance  still  speaks 
of  the  struggle  between  railway  lines  as  war.  One 
difficulty  has  been  this:  After  a  comparatively  stable 
equilibrium  has  been  reached  by  agreement  some 
new  and  powerful  rival  appears  in  the  field.  This 
new  and  powerful  rival  may  be  the  result  of  some 
new  combination,  or  it  may  be  the  result  of  the 
construction  of  a  new  railway  line.  A  new  rival 
appearing  in  the  field  is  like  a  new  cow  put  into 
a  pasture  with  a  herd  that  has  been  there  for 
some  time.  The  cattle  which  belong  to  the  field 
have  through  struggle  reached  what  may  be  called 
a  condition  of  equilibrium.  Each  one  knows  the 
strength  of  all  the  rest,  and  this  strength  is  re- 
spected, so  that  quarrels  are  no  longer  necessary. 
But  a  new  cow  entering  the  herd,  battles  have 
again  to  be  fought  to  determine  the  conditions  of 
a  new  equilibrium.  And  so  it  is  in  the  field  of  rail- 
ways. When  the  strength  of  the  new  rival  in  the 
field  is  thoroughly  tested,  a  new  adjustment  is 
secured.  This  sort  of  thing  will  have  to  go  on  till 
our  railway  system  has  nearly  completed  its  devel- 
opment, so  far  as  its  main  features  are  concerned, 
provided  always  that  private  ownership  and  man- 
agement of  our  railways  continue ;  and  about  that 
we  shall  for  the  present  express  no  opinion  either 
one  way  or  the  other. 

After  all,  the  agreements  among  the  railways 
are  of  such  a  kind  that  for  the  most  part  they 
may  be  described  as  unified  tactics  with  respect  to 

7i 


MONOPOLIES    AND    TRUSTS 

price.  Passenger  rates  and  freight  rates  are  gener- 
ally fixed  by  agreement.  Even  more  than  this  is 
true.  The  rate  of  speed  is  very  frequently  limited 
by  agreement,  in  order  that  those  railways  having 
the  best  natural  facilities  for  speed  may  not  utilize 
their  facilities  in  the  public  interest,  if  such  utiliza- 
tion is  to  the  disadvantage  of  other  railway  com- 
panies. It  is  thus  that  there  have  been  agreements 
with  regard  to  the  time  of  travel  between  New 
York  and  Boston,  Chicago  and  Minneapolis,  Chicago 
and  Denver ;  and  also,  as  appears  from  an  interview 
with  Mr.  Depew,  President  of  the  New  York  Cen- 
tral and  Hudson  River  Railway  Company,  between 
Chicago  and  New  York.  In  this  interview,  as  re- 
cently reported  in  the  Outlook,  Mr.  Depew  made 
the  statement  that  his  road  was  not  allowed  to 
utilize  fully  the  advantages  which  it  enjoyed  for 
making  fast  time  between  the  two  cities  last  men- 
tioned. The  railways  which  do  not  have  the  best 
natural  facilities  for  speed  enter  upon  a  rate  war  to 
prevent  the  most  favored  line  from  making  its 
maximum  rate  of  speed.  On  account  of  some  fast 
trains  which  one  of  the  lines  between  Chicago  and 
Denver  recently  started,  a  rate  war  was  for  some 
time  imminent;  but  it  seems  to  have  been  averted 
by  agreement. 

It  must  not  be  supposed  that  a  monopoly  se- 
cured by  agreement,  or  even  by  absolute  consoli- 
dation, prevents  all  rivalry.  A  limited  rivalry  is 
compatible  with  general  unity  of  management,  es- 
pecially as  expressed  in  price.     Agents  of  various 

72 


CLASSIFICATION    AND    CAUSES 

lines  may  go  out  of  their  way  to  solicit  patronage 
at  stipulated  rates,  and,  of  course,  unless  they  are 
held  under  firm  control,  they  will  cut  rates.  This, 
however,  is  being  prevented,  precisely  because  a 
firm  control  is  being  established.  There  are  also 
occasional  efforts  to  gain  an  advantage  over  rival 
lines  by  offering  superior  advantages  of  one  sort 
or  another,  although  this  rivalry  does  not  go  very 
far.  Lines  west  of  Chicago,  for  example,  have 
chair-cars  without  extra  charge,  but  lines  east  of 
Chicago  have  not.  Doubtless,  as  one  railway  may 
not  with  impunity  seek  to  gain  an  advantage  over 
others  through  speed  in  excess  of  agreement,  so 
one  would  hesitate  about  offering  a  decided  im- 
provement upon  present  facilities  at  the  old  rates, 
fearing  attacks  in  the  matter  of  rates  from  those 
who  may  be  left  behind.  It  is  difficult  to  measure 
precisely  how  far  one  railway  line  competes  with 
another  with  respect  to  comforts  and  conveniences, 
but  each  reader  may  on  the  basis  of  his  own  experi- 
ence form  an  estimate,  though  he  must  be  careful 
about  reaching  over-hasty  generalizations. 

It  may,  in  conclusion,  be  observed  that  even  com- 
plete or  absolute  monopoly  does  not  prevent  all 
rivalry  in  the  direction  of  superiority.  The  vari- 
ous departments  of  one  railway  may  engage  among 
themselves  in  a  rivalry  amounting  to  quasi  -  com- 
petition. Very  frequently  the  various  departments 
of  one  business  do  thus  engage  in  rivalry  with  each 
other.  This  is  also  seen  in  a  university  in  which 
there  is  rivalry  not  merely  with  other  universities, 

73 


MONOPOLIES    AND    TRUSTS 

but  also  among  its  own  various  departments ;  and 
in  a  well-managed  university  this  rivalry  furnishes  a 
helpful  stimulus,  though  it  must  be  closely  watched 
lest  it  degenerate  into  something  baleful.* 

We  come  next  to  monopolies  arising  from  se- 
crecy. Secrecy  is  not  so  available  for  an  improve- 
ment in  a  machine,  as  the  machine  itself  reveals 
the  improvement,  but  it  is  available  for  processes. 
It  is  the  case  with  many  monopolies  at  the  present 
time  that  they  are  in  part  based  upon  secrecy,  and 
secrecy  is,  therefore,  an  important  cause  in  a  scien- 
tific treatment  of  the  subject.  One  object  of  the 
patent  system  is  to  do  away  with  this  secrecy.  It 
is  held  by  the  law-makers  to  be  better  that  a  man 
should  publish  to  the  world  his  invention  or  im- 
provement and  receive  in  return  protection  for  a 
limited  period  of  time,  rather  than  that  he  should 
manufacture  secretly.  Yet,  as  has  just  been  stated, 
secrecy  is  observed  more  or  less  in  manufacturing 
at  the  present  time,  and  it  is  quite  possible  that 
the  amount  of  secrecy  has  been  underestimated  by 
modern  economists,  for  it  is  rarely  mentioned.  The 
patent  system  does  not  seem  to  suit  the  needs  of 
some  manufacturers  as  well  as  secrecy.  One  of 
the  largest  tanners  in  the  United  States  recently 
told  the  author  that  he  always  preferred  secrecy  to 


*  Those  who  wish  a  further  elaboration  of  the  author's 
views  in  this  particular  will  find  an  early  expression  of  them 
in  his  Problems  of  To-Day,  and  a  more  recent  one  in  his 
Outlines  of  Economics,  and  Socialism  and  Social  Reform. 

74 


CLASSIFICATION    AND    CAUSES 

patents.  "  Of  course,"  he  added,  "the  secret  pro- 
cesses are  likely  to  become  known  soon,  but  appli- 
cation for  a  patent  would  make  them  known  at  once, 
and  while  secrecy  lasts  there  is  an  advantage  over 
others."  The  Krupps,  of  Germany,  the  great  can- 
non manufacturers,  are,  it  is  said,  reluctant  to  al- 
low visitors  to  enter  their  works.  They  have  se- 
cret processes  which  they  are  desirous  should  not 
become  known.  It  has  recently  been  stated  that 
the  same  is  true  of  the  Duponts,  in  this  country,  the 
manufacturers  of  gunpowder.  They  have  secret 
processes  which  they  wish  to  protect.  The  same 
is  also  true  with  respect  to  the  manufacture  of  cer- 
tain wheat  preparations  in  Minneapolis.  One  is 
not  admitted  to  the  works  without  an  introduction, 
and  an  assurance  given  to  the  proprietor  that  the 
visitor  will  not  imitate  the  manufacture  of  anything 
that  he  sees  there.  It  is  also  difficult  to  gain  ac- 
cess to  the  Franklin  Sugar  Refinery,  in  Philadel- 
phia. Secrecy,  the  author  has  been  told,  was  long 
observed  with  respect  to  a  very  important  part  of 
the  manufacture  of  india-rubber,  and  was  at  least  a 
chief  cause  of  the  monopoly  of  some  favorite  articles 
made  of  this  substance.  Secrecy  is  also  used  very 
largely  in  the  manufacture  of  chemicals — e.g.,  soda- 
ash,  by  the  Solvay  Company,  of  Syracuse  and  De- 
troit, and  in  large  chemical  works  in  Germany. 
Secrecy,  then,  is  a  source  of  monopoly  at  the  pres- 
ent time. 

Opportunity  will  be  found   in  later  portions  of 
this  volume    to  say  more  about   the   causes   of 

75 


MONOPOLIES    AND    TRUSTS 

monopoly,  especially  when  we  come  to  an  exam- 
ination of  the  limits  of  monopoly.  We  now  pass 
to  other  classifications  of  monopoly,  which  we  may 
go  over  more  rapidly,  as  they  are  less  elaborate  and 
less  important,  although  by  no  means  without  sig- 
nificance. 

With  reference  to  the  completeness  of  the  mo- 
nopoly, we  have  a  classification  into : 

A.  Absolute  Monopolies. 

By  this  we  mean  a  complete  control  over  the 
entire  supply  of  the  article  or  service.  A  gas  busi- 
ness, in  the  hands  of  one  corporation,  alone  furnish- 
ing gas  to  the  inhabitants  of  a  given  city,  affords 
an  illustration. 

B.  Complete  Monopolies. 

By  a  complete  monopoly  we  mean  a  monopoly 
which  results  from  substantial  unity  of  action  on 
the  part  of  those  in  the  business  —  what  people 
ordinarily  call  a  monopoly,  although  there  may 
not  be  absolute  control  over  the  entire  business. 
We  might  say,  perhaps,  that  the  Standard  Oil 
Company  is  a  complete  monopoly,  but  it  does  not 
have  an  absolute  monopoly.  It  is  sometimes  said 
that  a  combination  of  those  furnishing  from  seventy- 
five  to  ninety-five  per  cent,  of  the  supply  of  a  com- 
modity results  in  substantial  control  over  price,  and 
thus  gives  a  monopoly.*  The  proportion  of  supply 
necessary  to  establish  a  monopoly  must  vary  with 
the  circumstances  of  each  particular  case.     Monop- 

*  Cf.  chap,  i.,  pp.  8,  9. 
76 


CLASSIFICATION    AND    CAUSES 

oly,  as  it  is  defined  in  the  present  work,  includes 
complete  monopoly,  and  a  higher  form  would  be 
absolute  monopoly. 

C.  Partial  or  Incomplete  Monopolies. 

Partial  monopolies  have  already  been  explained 
in  another  connection.  They  exist  whenever  one 
or  more  persons  control  so  large  a  portion  of  the 
field  of  a  particular  business  that  they  are  able  to 
restrain  competition  and  secure  some  of  the  advan- 
tages of  monopoly;  so  that  the  conditions  deter- 
mining price  and  other  conditions  are  appreciably 
different  from  what  they  would  be  under  free  com- 
petition.* 

We  may  make  another  classification  with  refer- 
ence to  the  increase  in  the  supply  of  the  monopo- 
lized articles : 

A.  Monopolies  which  permit  No  Increase  in  the 
Supply  of  the  Monopolized  Articles. 

An  example  would  be  the  works  of  an  old  master 
like  Raphael.  There  is  no  increase  of  the  supply 
possible. 

B.  Monopolies  permitting  an  Increased  Supply 
of  the  Monopolized  Articles. 

*  It  could  be  objected  that  incomplete  monopolies  are 
really  not  monopolies  at  all,  as  monopoly  does  not  arise 
until  unified  control  is  secured.  This  is  a  logical  objection 
which  has  force,  but  we  find  the  category  of  businesses 
which  correspond  to  this  description,  and  it  is  believed  that 
here,  as  so  frequently  elsewhere  in  real  life,  we  may  with 
advantage  adopt  a  convenient  nomenclature,  even  if  we 
sacrifice  something  in  the  direction  of  strict  logical  require- 
ments. 

77 


MONOPOLIES    AND    TRUSTS 

The  supply  of  a  monopolized  article  may  fre- 
quently be  increased  by  those  who  control  the 
monopoly.  That  is  the  case,  for  example,  with  ref- 
erence to  the  gas  supply. 

We  may  also  have  at  this  point  a  sub-classifica- 
tion with  reference  to  the  conditions  under  which 
the  supply  may  be  increased  : 

I.  With  Increasing  Difficulty. 

It  is  alleged  that  the  telephone  service  in  a  great 
city  is  of  this  kind,  but  the  author  does  not  know 
whether  it  is  true  or  not.  It  is  so  claimed  by  our 
private  companies,  but  it  is  unfortunately  true  that 
their  claim  is  not  sufficient  to  convince  some  of  us. 
To  find  out  whether  this  is  true  or  not,  we  would 
have  to  go  to  a  place  where  the  service  is  provided 
by  public  bodies. 

Unless  the  point  of  full  utilization  of  an  existing 
plant  has  been  reached,  the  alleged  increasing  ex- 
penses per  unit  of  increasing  business  in  the  case  of 
the  telephone  must  refer  to  single  items,  especially 
those  immediately  belonging  to  that  department  of 
the  service  which  has  to  do  with  establishing  con- 
nections between  the  increasing  number  of  users  of 
the  telephone.  Obviously  many  other  expenses  do 
not  increase  in  proportion  as  the  business  increases. 
Manifestly,  also,  the  telephone  business  of  any  city 
can  be  conducted  for  less  by  one  plant  than  by  two 
competing  plants,  provided  that  the  same  ends  are 
even  approximately  secured ;  for  rivalry  implies  two 
telephones  for  a  large  proportion  of  the  subscribers ; 
and  even  if  every  subscriber  had  two  telephones, 

78 


CLASSIFICATION    AND    CAUSES 

the  same  ends  would  be  only  approximately  reached, 
as  the  absence  of  unity  would  be  an  inconvenience 
involving  considerable  annoyance  and  loss. 

Apropos  of  the  salt  which  must  frequently  ac- 
company acceptance  of  the  claims  of  great  cor- 
porations, it  may  be  remarked  that  the  Western 
Union  Telegraph  Company  claimed  for  years  that 
it  was  impossible  to  have  underground  wir£s,  al- 
though it  was  known  at  the  time,  and  had  long 
been  known,  that  such  an  arrangement  was  quite 
possible.* 

Another  illustration  of  this  sub-class  would  be 
the  pictures  of  a  great  living  artist,  who  had  al- 
ready painted  as  many  as  he  could  easily,  but  with 
a  certain  increasing  difficulty  might  increase  the 
number. 

*  When  the  author  at  one  time  was  in  the  office  of  a 
large  electric-lighting  company  in  one  of  the  principal  cities 
of  the  United  States,  he  pointed  to  the  very  large  number  of 
wires  in  front  of  the  window  where  he  was  standing,  which 
almost  darkened  the  sky.  In  reply  to  his  remark  that  it 
was  really  a  shame  to  have  all  those  wires  in  the  street, 
and  that  they  ought  to  be  buried  under  the  street,  he  was 
told  "  It  is  not  possible."  Presently,  the  same  gentleman 
who  had  said  that  it  was  not  possible  to  bury  the  wires  was 
kindly  showing  the  author  photographs  of  European  cities  in 
which  the  company  operated,  and  when  it  was  pointed  out 
to  him  that  there  were  no  poles  in  the  streets  of  these  cities 
and  that  the  wires  were  evidently  underground,  he  said,  "  Oh, 
yes,  that  is  true ;  but  it  costs  more !"  When  our  large  cor- 
porations tell  us  that  things  are  not  possible,  it  is  found  by 
experience  that  their  remarks  not  infrequently  require  inter- 
pretation. 

79 


MONOPOLIES    AND    TRUSTS 

Another  possible  case  would  be  some  choice 
wines  from  vineyards  in  a  particular  section  of  the 
country. 

II.  With  Constant  Difficulty. 

Possibly,  after  a  certain  point  is  reached,  a  copy- 
righted book  would  be  an  illustration.  Up  to  that 
point,  the  larger  the  supply  the  less  will  be  the  cost 
per  book.  By  the  time  we  reach  one  hundred 
thousand  we  have  perhaps  got  as  low  in  price  as 
possible.  The  publisher,  in  that  case,  could  not  fur- 
nish two  hundred  thousand  copies  for  less  per  book 
than  he  could  one  hundred  thousand. 

III.  With  Decreasing  Difficulty. 

The  gas  business  affords  an  illustration ;  but  the 
qualifications  already  mentioned  must  be  borne  in 
mind. 

The  above  classification  is  one  which  has  especial 
importance  in  the  discussion  of  price  and  of  the  tax- 
ation of  monopolies. 

The  next  classification,  with  reference  to  the  area 
within  which  the  monopoly  operates,  is  as  follows: 

A.  Local  Monopolies. 

These  are  monopolies  extending  over  a  relatively 
small  area.  The  gas  supply  of  any  city  is  an  illus- 
tration. There  are  various  monopolies  which  are 
confined  to  a  single  locality.  Then  there  are  tem- 
porary local  monopolies  which  under  peculiar  ex- 
igencies may  arise.  Two  young  men  in  Chicago 
last  winter  cornered  the  market  on  eggs  and  made 
fifteen  thousand  dollars  out  of  the  operation.  The 
weather  was  so  cold  that  eggs  could  not  be  shipped 

80 


CLASSIFICATION    AND    CAUSES 

to  the  city,  and  for  a  few  days  these  speculators 
had  a  monopoly,  accounts  of  which  appeared  in  the 
newspapers. 

B.  National  Monopolies. 

C.  International  or  Universal  Monopolies. 

There  have  been  various  attempts  to  secure  uni- 
versal monopoly,  of  which  the  copper  monopoly  of 
1889  affords  an  illustration. 

These  are  more  or  less  arbitrary  divisions,  be- 
cause a  protective  tariff  may  enable  a  monopoly  to 
exist  in  one  country  when  the  same  article  or  ser- 
vice is  not  monopolized  in  another  country.  There 
are  attempts  to  establish  monopolies  beyond  the 
nation,  but  how  large  will  be  the  number  of  cases  in 
which  success  will  be  achieved  remains  to  be  seen. 
There  is  no  doubt  that  the  oil  companies  of  the 
United  States  and  Russia  are  endeavoring  to  estab- 
lish an  international  and  even  a  world- monopoly. 
The  Standard  Oil  Company  has  a  complete  mo- 
nopoly in  this  country,  in  Germany,  in  England, 
and  in  France. 

We  may  have  a  classification  based  upon  the 
position  which  the  monopolist  holds  with  reference 
to  sales  and  purchases.     This  gives  us : 

A.  Sellers'  Monopolies. 

B.  Buyers'  Monopolies. 

Buyers'  monopolies  are  less  frequent  than  sellers' 
monopolies,  because  the  buyers  of  any  commodity 
or  service  are  so  often  more  numerous  than  the 
sellers.  There  are,  however,  cases  in  which  buyers 
have  special  facilities  for  establishing  monopolies. 


MONOPOLIES    AND    TRUSTS 

Wholesale  buyers  have  some  facilities,  because  they 
are  not  so  large  in  number  as  those  from  whom  they 
purchase.  The  buyers  of  labor  power,  especially, 
have  facilities  for  establishing  a  monopoly.  Pro- 
fessor Wilhelm  Lexis  mentions  the  buyers  of  sec- 
ond-hand goods.  It  is  hard  to  see  how  a  second- 
hand dealer  has,  in  general,  anything  which  can 
properly  be  called  a  monopoly,  although,  as  Pro- 
fessor Lexis  says,  a  man  may  feel  a  certain  reluct- 
ance to  sell  a  second-hand  suit  of  clothes,  and  this 
may  give  the  buyer  an  advantage. 

We  may  also  have  the  following  classification 
with  reference  to  the  objects  of  monopoly : 

A.  Material  Goods. 

B.  Services. 

I.  Services  which  are  incorporated  in  ma- 
terial goods — what  the  Germans  call 
"  material   labor  services,"  e.  g.,  the 
service  in  the  transportation  of  freight. 
II.  Personal  Services;  as  those  of  a  physi- 
cian or  nurse.     But  it  is  only  rarely 
that  a  monopoly  of  this  sort  exists 
on  a  large  scale.     Where  it  is  found, 
it  is  usually  in  some  small  town  or 
rural  district. 
These,  then,  are  the  various  classifications.  Doubt- 
less we  could  extend  the  classifications  indefinitely 
from  one  point  of  view  or  another,  but  the  classi- 
fications given  are  sufficient  for  our  purposes.     The 
most  important  classification,  and  the   most  thor- 
oughgoing, is  the  second  one,  which  is  the  classi- 

82 


CLASSIFICATION    AND    CAUSES 

fication  with  reference  to  the  sources  of  monopoly- 
power. 

It  will  be  convenient  now  to  present  by  them- 
selves, without  comment,  the  classifications  of  mo- 
nopolies which  the  author  offers,  before  passing 
on  to  classifications  which  other  writers  have  given. 

First  Classification : 

A.  Public  Monopolies. 

B.  Private  Monopolies. 

Second  Classification : 

A.  Social  Monopolies. 

I.  General  Welfare  Monopolies. 

1.  Patents. 

2.  Copyrights. 

3.  Public  Consumption  Monopolies. 

4.  Trade-marks. 

5.  Fiscal  Monopolies. 

II.  Special  Privilege  Monopolies. 

1.  Those  based  on  Public  Favoritism. 

2.  Those  based  on  Private  Favoritism. 

B.  Natural  Monopolies. 

I.  Those  arising  from  a  Limited  Supply 
of  Raw  Material. 
II.  Those  arising  from  Properties  Inherent 

in  the  Business. 
III.  Those  arising  from  Secrecy. 

Third  Classification : 
A.  Absolute  Monopolies. 
83 


MONOPOLIES    AND    TRUSTS 

B.  Complete  Monopolies. 

C.  Partial  or  Incomplete  Monopolies. 

Fourth  Classification : 

A.  Monopolies  which  admit  of  No  Increase  in 

the  Supply  of  the  Monopolized  Articles. 

B.  Monopolies  which  admit  of  an  Increased  Sup- 

ply of  the  Monopolized  Articles. 
I.  With  Increasing  Difficulty. 
II.  With  Constant  Difficulty. 
III.  With  Decreasing  Difficulty. 

Fifth  Classification: 

A.  Local  Monopolies. 

B.  National  Monopolies. 

C.  International  or  Universal  Monopolies. 

Sixth  Classification : 

A.  Sellers'  Monopolies. 

B.  Buyers'  Monopolies. 

Seventh  Classification: 

A.  Monopolies  of  Material  Goods. 

B.  Monopolies  of  Services. 

I.  Services     Incorporated     in     Material 
Goods. 
II.  Personal  Services. 

It  will  be  profitable  to  make  a  comparison  be- 
tween the  author's  classifications  of  monopoly  and 
other  classifications.  Attention  is  first  of  all  called 
to  the  classification  given  by  Senior  in  his  Political 
Economy.  That  is  a  classification  which  is  merito- 
rious.    It  appeared  at  an  early  date,  and  shows  an 

84 


CLASSIFICATION    AND    CAUSES 

attempt  to  treat  the  subject  critically  and  scientif- 
ically. 

He  divides  monopolies  into  four  kinds.  The  first 
class  of  monopolies  consists  of  those  businesses  in 
which  the  monopolist  has  superior  facilities  as  a 
producer  and  can  increase  with  undiminished  or 
even  increased  facility  the  amount  of  his  product, 
but  where  he  has  not  the  exclusive  power  of  pro- 
ducing. This  is  not  a  true  monopoly  according  to 
our  definition.  However,  the  one  who  is  in  this 
position  may  become  a  monopolist.  If  any  one 
has  superior  facilities  or  advantages  and  can  in- 
crease indefinitely  his  production,  he  is  in  a  posi- 
tion to  become  a  monopolist.  Senior  instances  the 
case  of  Arkwright,  the  yarn  producer,  who  could 
not  sell  yarn  for  more  than  others,  but  who,  selling 
at  the  same  price,  was  in  a  position  to  reap  an 
enormous  gain.  Thus  his  price  was  limited  by 
what  those  could  produce  it  for  who  had  less  de- 
sirable facilities  than  he,  but  he  did  not  have  the 
whole  field  and  did  not  choose  to  drive  out  all 
others.  Here  was  a  large  differential  gain,  but  not 
a  complete  monopoly. 

The  second  kind  consists  of  those  who  have  no 
competition,  and  enjoy  a  supply  of  which  no  in- 
crease can  be  effected,  so  that  really  there  can  be 
no  competition.  Senior  instances  the  case  of  the 
owners  of  vineyards  producing  choice  wines — say, 
"  Constantia,"  which  has  a  peculiar  flavor.  This 
was  all  owned  by  one  man.  No  increase  and  no 
competition  were  possible. 

85 


MONOPOLIES    AND    TRUSTS 

The  third  kind  of  monopoly  consists  of  those 
cases  in  which  the  monopolist  is  the  only  producer, 
and  in  which,  consequently,  there  is  no  competi- 
tion, while  the  business  is  of  such  a  kind  that  the 
monopolist  can  increase  his  production  indefinitely. 
Copyrighted  books  afford  an  illustration.  Here  we 
have  a  monopoly,  and  the  supply  can  be  increased. 

The  fourth  class  of  monopolies  exists  where  pro- 
duction is  assisted  by  natural  agents,  limited  in 
number  and  varying  in  power,  and  repaying  effort 
with  a  decreasing  reward;  in  other  words,  busi- 
nesses of  decreasing  returns,  especially  agriculture, 
where  production  can  be  increased,  but  where  the 
increase  is  attended  with  increasing  difficulty. 

We  have,  then,  as  the  first  class  of  monopolists, 
those  who  are  subject  to  a  certain  kind  of  competi- 
tion, for  the  time  being  at  any  rate,  but  who  are  in 
a  position  eventually  to  establish  monopoly.  The 
second  and  third  classes  are  real  monopolists.  In 
cases  of  the  fourth  class,  we  have  only  differential 
gains. 

The  next  classification  to  be  mentioned  is  the 
more  elaborate  one  of  Professor  Lexis  in  the  Ger- 
man Dictionary  of  Political  Science.*  He  makes 
two  main  classes : 

A.  Sale  Monopolies,  or  Sellers'  Monopolies. 

B.  Purchase  Monopolies,  or  Buyers'  Monopolies. 
His  discussion  is  concerned  principally  with  Sell- 

*  Handworterbuch  der  Staatswissenschaften,  edited  by 
Conrad  and  others. 

86 


CLASSIFICATION    AND    CAUSES 

ers'  Monopolies,  and  these  are  the  ones  usually  re- 
ferred to  when  monopolies  are  discussed.  Much  that 
he  says  in  regard  to  this  class  would  be  applicable 
also  to  the  other  class.  His  sub-classes  under  A  are: 
I.  Natural  Monopolies. 

II.  Artificial  Monopolies. 

Natural  Monopolies  rest  upon  scarcity,  and  Pro- 
fessor Lexis  says  that  among  these,  personal  talents 
form  the  most  easily  understood  class.  That  is  not, 
in  the  present  writer's  opinion,  correct.  No  one, 
by  reason  of  his  talents,  is  in  such  a  position  that 
he  is  a  genuine  monopolist.  Persons  of  great  talent 
may  have  something  approximating  monopoly,  but 
that  is  all.  A  singer  like  Patti,  for  instance,  is  in  a 
class  by  herself. 

Artificial  Monopolies,  according  to  Professor 
Lexis,  rest  upon  (a)  combination  or  secrecy  of 
technical  aids,  (b)  State  institutions  —  upon  the 
power  of  the  State.  Where  the  conditions  for 
natural  monopoly  are  present  in  part,  but  not  com- 
pletely, the  process  is  completed  by  an  artificial 
combination  on  the  part  of  the  sellers,  removing 
competition  where  it  would  otherwise  remain. 
When  the  production  can  be  increased  at  pleasure 
with  constant  difficulty,  there  cannot  be  an  arti- 
ficial monopoly;  it  is  simply  temporary,  unless 
aided  by  State  restriction,  as  by  the  prohibition  of 
imports  or  high  protective  duties. 

Mere   combination   by  itself,*  Professor   Lexis 

*  Not  even  if  aided  by  a  large  mass  of  capital. 
87 


MONOPOLIES    AND    TRUSTS 

maintains,  cannot  establish  monopoly.  That  is  a 
position  which  the  present  author  has  long  taken 
and  upheld  against  the  writings  of  Professor  J.  W. 
Jenks  and  some  other  economists,  and  he  is  glad 
to  have  such  strong  support.  Professor  Lexis  says 
truly,  that  there  must  be  other  conditions  present 
to  make  anything  more  than  a  temporary  monop- 
oly possible.  If  these  other  conditions  are  not 
present ;  if  there  is  no  State  aid,  and  if  there  are 
no  natural  conditions  favoring  monopoly,  then  it  is 
held  that  there  can  be  nothing  more  than  a  tem- 
porary monopoly. 

Under  the  second  sub-class  (b)  the  same  author 
has  Public  Artificial  Monopolies.  Here  he  has 
reference  to  patents,  etc.  He  also  puts  under  this 
head  trade  licenses,  like  those  in  Germany  permit- 
ting one  to  undertake  the  business  of  an  apoth- 
ecary. Here  we  have  only  a  limited  competition, 
not  real  monopoly.  He  is  here  inconsistent  with 
his  definition,  for,  to  use  his  own  phrase,  we  do 
not  in  this  case  have  "unified  tactics  with  respect  to 
price." 

He  has  also  the  following  sub-classes : 

III.  General  Monopolies. 

IV.  Local  Monopolies. 

We  have  had  this  classification,  and  need  not  now 
dwell  upon  it.  Attention  may,  however,  be  called 
to  an  instance  given  by  Professor  Lexis  of  a  world- 
wide monopoly.  He  says  that  the  London  house 
of  Rothschild  had  a  monopoly  of  quicksilver  from 
1835  until  the  discovery  of  the  mines  of  cinnabar 

88 


CLASSIFICATION    AND    CAUSES 

(red  sulphid  of  mercury)  in  New  Almaden,  Cali- 
fornia. This  monopoly  embraced  the  entire  earth, 
and  rested  upon  an  agreement  with  the  Spanish 
government,  the  owner  of  the  quicksilver  mines  of 
Almaden,  and  the  Austrian  government,  the  own- 
er of  the  quicksilver  mines  of  Adria.  With  these 
governments  the  London  house  of  Rothschild  had 
formed  a  combination.  This  would  be  an  illus- 
tration of  a  world-wide  monopoly  resting  upon  a 
natural  basis  and  completed  by  combination. 

It  is  said  that  the  diamond  fields  in  some  parts 
of  the  world  are  monopolized.  Professor  Lexis 
mentions  the  attempts  that  have  been  made  to 
monopolize  tin.  It  is  comparatively  rare,  although 
found  in  more  places  than  quicksilver,  but  these 
attempts  have  been  only  temporarily  successful. 
Between  1887  and  1890  there  was  a  strong  effort  to 
monopolize  copper,  but  this  failed  because  the  cop- 
per production  was  not  sufficiently  limited  —  was 
too  extensive  and  too  easily  enlarged.  In  other 
words,  the  natural  basis  was  too  large,  and  the  mo- 
nopoly failed. 

Then  a  distinction  is  made  as  follows : 
V.  Temporary  Monopolies. 

VI.  Permanent  Monopolies. 

Professor  Lexis  says  that  if  the  monopoly  is  per- 
manent, the  annual  income  is  capitalized,  and  the 
new  purchaser  accordingly  has  no  special  advan- 
tages, but  has  to  be  satisfied  with  current  returns 
upon  his  investment.  He  says  that  the  purchaser 
has  no  monopoly.    That  is  not  strictly  true.    Take 

89 


MONOPOLIES    AND    TRUSTS 

the  quicksilver  mines.  Suppose  there  is  re-estab- 
lished a  world  -  monopoly.  The  one  who  pur- 
chases some  interest  in  it  may  have  no  special 
advantage  over  the  one  who  makes  another  kind 
of  investment,  because  the  price  is  so  high  that 
it  takes  out  for  the  new  purchaser  all  advantage. 
But  he  does  have  a  monopoly  quite  the  same, 
although  the  advantage  of  the  monopoly  has  been 
kept  by  some  one  else.  The  new  purchaser  does 
not  get  in  "on  the  ground  floor,"  but  gets  in  only 
when  the  special  advantages  have  already  been 
reaped :  in  other  words,  he  does  have  the  monopoly, 
although  he  reaps  no  special  advantages  from  his 
monopoly.  Of  course,  that  will  always  be  the  case. 
It  is  the  same  with  personal  privileges.  Professor 
Lexis  mentions  the  fact  that  the  number  of  agents 
on  the  Paris  Stock  Exchange  is  fixed  at  sixty,  and 
that  the  price  for  the  privilege  of  dealing  on  the 
Bourse  is  about  two  and  a  half  million  francs.  One 
who  has  this  privilege  does  not  sell  it  except  at  a 
price  which  will  reduce  the  advantages  of  the  posi- 
tion to  those  of  positions  which  are  competitive. 
The  monopolist  does  not  put  his  position  into  the 
competitive  world  until  he  has  taken  out  all  the 
advantages. 

Professor  Lexis  gives  as  his  next  classification : 
VII.  Productive  Monopolies. 

VIII.  Commercial  Monopolies. 

As  the  terms  imply,  Productive  Monopolies  are 
monopolies  on  the  part  of  producers,  using  the 
word  producers  in  the  popular  sense,  referring  es- 

9° 


CLASSIFICATION    AND    CAUSES 

pecially  to  those  concerned  with  raw  materials  and 
to  manufacturers ;  while,  of  course,  Commercial 
Monopolies  are  those  in  the  mercantile  field.  An 
illustration  of  the  latter  would  be  the  East  India 
Company. 

Finally,  he  makes  this  distinction : 

IX.  Absolute  pr  Perfect  Monopolies. 
X.  Relative  or  Imperfect  Monopolies. 

There  is,  in  the  author's  opinion,  no  such  thing  as 
a  relative  monopoly.  There  is  a  partial  monopoly. 
Professor  Lexis  puts  land  under  the  head  of  rela- 
tive monopolies;  but  this  is  not  correct,  for,  to  use 
his  own  expression,  there  is  no  "  unity  in  price 
tactics"  among  landowners  and  cultivators. 

Under  B,  Purchase  Monopolies,  or  Buyers'  Mo- 
nopolies, Professor  Lexis  mentions  local  dealers  as 
having  such  a  monopoly,  especially  with  respect  to 
those  indebted  to  them.  They  sometimes  have  a 
sort  of  monopoly.  He  also  mentions  second-hand 
dealers.  They  might  have  a  monopoly  in  some  places. 

We  turn  next  to  the  classification  given  by  Pro- 
fessor Emory  R.  Johnson  for  himself  and  Professor 
Simon  N.  Patten.* 

Form  Income 

Differential                    /  kand     ,  £and  rent     .  1  Restrictive  mo- 

.                   \  [^sd0nal  Marginal  rent    I     ™Polies    en" 

Monop-J                          Optional  ■<  Goods  Interest                   surplus 

olies.     |  Non- differ-                       (^  Labor  Surplus  wages  J 

ential  or     •<  ( Exclusive    mo- 
Marginal       TTrrliioivA  / Private  Tallage              J      nopolies    en- 
Jixclus,ve  \  Public  Fiscal  taxes             joying      free 

I.     surplus  t 

*  It  is  primarily,  Professor  Johnson  tells  us,  the  work  of 
Professor  Patten. 
f  See  Tables  on  pp.  79  and  87  of  "  The  Relation  of  Tax- 
9i 


MONOPOLIES    AND    TRUSTS 

We  find  illustrated  in  this  statement  of  monop- 
oly by  Professors  Patten  and  Johnson  just  what 
has  been  already  said — namely,  that  to  them  mo- 
nopoly absolutely  covers  the  entire  field  of  indus- 
try and  of  economic  life.  Where  we  have  economic 
life,  there  we  have  monopoly.  Attention  is  now 
and  here  simply  called  to  one  or  two  expressions.* 

"  Differential  monopolies,"  according  to  the  theory 
of  the  present  work,  are  really  not  monopolies  at 
all,  but  businesses  in  which  certain  persons  have  an 
advantage  over  others.  "  Non-differential  monopo- 
lies" are  those  businesses  which  afford  a  surplus  at 
the  point  of  marginal  production.f  Professor  John- 
son says,  for  himself  and  Professor  Patten,  that  every 
pursuit  affords  such  a  surplus.  He  calls  some  mo- 
nopolies optional  monopolies,  because  in  those  cases 
the  monopolist  can  put  his  resources  to  one  use 
or  another,  and  that  gives  him  a  marginal  surplus. 
Professor  Johnson  also  includes  exclusive  monop- 
olies, which  are,  according  to  our  definition,  the 
only  ones  which  are  real  monopolies.  He  says  that 
private  exclusive  monopolies  have  a  gain  which  he 

ation  to  Monopolies,"  by  Professor  Emory  R.  Johnson,  in 
The  Annals  of  the  American  Academy  of  Political  and  Social 
Science  for  March,  1894. 

*  The  part  of  this  work  dealing  with  the  history  of  the 
theory  of  monopoly  will  discuss  Professor  Patten's  theories 
at  greater  length. 

t  In  production  under  the  least  favorable  circumstances 
under  which  it  is  carried  on,  surplus  means  an  excess  above 
subjective  costs  or  sacrifices. 

92 


CLASSIFICATION    AND    CAUSES 

calls  "tallage,"  and  that  public  exclusive  monopo- 
lies may  have  a  gain  through  fiscal  taxation.  All 
those  monopolies  which  are  not  exclusive  are  term- 
ed restrictive  monopolies,  because  "  the  monopoly 
forces  do  not  here  prevent  competition,  but  merely 
restrict  it  within  certain  limits." 

Professor  J.  W.  Jenks  incidentally  gives  a  clas- 
sification of  monopolies  in  his  valuable  article  on 
"  Monopolies  in  the  United  States  "  in  Palgrave's 
Dictionary  of  Political  Economy.  He  divides  them 
into  three  main  classes — namely,  Legal  Monopolies, 
Natural  Monopolies,  and  Capitalistic  Monopolies. 
Legal  monopolies  include  patents,  copyrights,  etc. ; 
while  his  class  Natural  Monopolies  includes  such 
businesses  as  railways,  gas-works,  etc.  Capitalistic 
monopolies  are,  according  to  this  author,  monop- 
olies which  rest  on  mass  of  capital,  his  idea  be- 
ing that  quantity  of  capital  can  secure  monopoly. 
The  present  writer's  dissent  from  this  view  has  al- 
ready been  mentioned,  and  will  later  receive  fuller 
treatment. 

The  best  classification  of  monopolies  to  be  found 
in  any  text-book  of  economics  is  that  which  Dr. 
Charles  J.  Bullock  gives  in  his  excellent  manual,  Intro- 
duction to  the  Study  of  Economics.*    It  is  as  follows: 

A.  Personal  Abilities. 

B.  Legal  Monopolies. 

I.  Private  Monopolies,  such  as  patents  and 
copyrights. 

*  First  edition,  1897, 
93 


MONOPOLIES    AND    TRUSTS 

II.  Public    Monopolies,  such  as  the  postal 
business  of  modern  countries. 

C.  Natural  Monopolies. 

I.  Monopolies  of  location,  such  as  the  mo- 
nopoly of  anthracite  coal. 
II.  Monopolies  due  to  consumption  of  prod- 
ucts in  connection  with  the  plants, 
such  as  gas-  and  electric-light  works 
and  railways. 

D.  Capitalistic  Monopolies  ;  such  as  agreements, 

pools,  and  the  former  trusts,  and  the  vast 
corporations  which  now  replace  the  trusts. 

This  classification  has  the  merit  of  compactness, 
and  Dr.  Bullock's  discussion  of  monopolies  con- 
trasts most  favorably  with  what  is  found  in  the  or- 
dinary text-book  of  economics.  What  the  writer 
has  said  already  and  his  own  classifications  show 
the  points  of  difference  between  Dr.  Bullock  and 
himself. 

Mr.  Sidney  Ball,  of  St.  John's  College,  Oxford, 
incidentally  gives  a  brief  classification  of  monopo- 
lies in  an  article  which  he  wrote  on  "  Mr.  Herbert 
Spencer  on  Industrial  Institutions,"  in  the  Inter- 
national Journal  of  Ethics  for  January,  1898.     He 
gives  simply  three  classes  of  monopolies,  as  follows : 
I.  Monopolies  of  Efficiency,  as  in  the  case  of 
Krupp  or  Armstrong. 
II.  Monopolies  of  Local  Services,  etc. 
III.  Monopolies  resulting  from  Combination,  as 
in  syndicates  and  trusts. 

94 


CLASSIFICATION    AND    CAUSES 

The  present  writer  denies  that  there  is  such  a 
thing  as  a  monopoly  of  efficiency,  holding  that 
efficiency  can  give  only  differential  gains  somewhat 
analogous  to  the  rent  of  land.  So  far  as  the  third 
class  is  concerned,  he  has,  in  common  with  Professor 
Lexis,  already  expressed  the  conviction  that  com- 
bination itself  cannot  produce  monopoly.  Doubt- 
less, however,  Mr.  Ball  did  not  intend  the  above 
as  a  complete  scientific  classification. 

95 


CHAPTER  III 
THE  LAW   OF  MONOPOLY   PRICE 

The  mention  of  monopoly  price*  brings  us  face 
to  face  with  the  chief  thing  in  the  power  of  mo- 
nopoly ;  but  it  is  a  mistake  to  suppose  that  it  is 
the  only  thing,  and  some  are  making  a  mistake  in 
their  discussions  because  they  have  excluded  al- 
most every  other  aspect  of  the  subject  except  this 
price-power  of  monopoly.  The  monopolist  has  the 
power  of  withholding  supplies  or  of  furnishing  the 
supplies  irregularly,  and  that  power  enables  him 

*  The  term  monopoly  price  is  used  in  two  somewhat  dif- 
ferent senses.  Sometimes  it  signifies  the  price  actually 
charged  by  a  monopolist,  and  sometimes  it  means  the  price 
which  will  yield  the  highest  net  returns.  The  price  actual- 
ly charged  may  be  regulated  by  statute,  and  this  may  differ 
from  the  price  which  would  yield  the  highest  net  returns; 
again,  the  two  may  differ  because  the  monopolist  fails  to 
discover  the  price  yielding  the  highest  net  returns,  as,  in 
fact,  he  frequently  does.  It  was,  for  example,  a  long  time 
before  the  postal  authorities  of  the  world  discovered  the 
profitableness  of  low  postage  rates  on  letters.  It  is  be- 
lieved, however,  that  in  this  work  the  variation  in  use, 
which  cannot  be  avoided  without  wearisome  circumlocu- 
tion, need  occasion  no  confusion  of  thought. 

96 


THE    LAW    OF    MONOPOLY    PRICE 

to  break  down  competition.  It  is  through  this 
power  that  the  monopolist  can  drag  others  under 
the  wheels  of  monopoly  and  crush  them  out.  His 
is  not  simply  the  power  of  raising  the  price.  The 
power  of  withholding  supplies  or  of  furnishing  them 
irregularly  has  likewise  to  be  considered.  For  ex- 
ample, take  the  way  in  which  the  railways  some- 
times break  down  a  coal  business.  It  is  not  simply 
by  charging  a  higher  rate  to  those  who  are  destined 
to  be  crushed,  but  by  withholding  cars  for  the  trans- 
portation of  their  coal.  Here  are  two  rival  com- 
panies: one  is  destined  to  be  crushed,  and  the  other 
"stands  in"  with  the  railway  company.  For  some 
reason,  this  one's  cars  are  sent  through  promptly, 
while  those  of  the  other  are  side-tracked.*  It  is 
hard  to  understand  this,  if  one  offers  complete  cre- 
dence to  the  statements  of  the  offending  compa- 
nies, but  it  happens  so  again  and  again.  There  are 
thousands  of  ways  besides  the  control  over  prices 
whereby  competition  can  be  crushed  and  the  power 
of  monopoly  exerted  over  industry;  and  it  appears 
necessary  to  state  these  things  at  the  outset  of  this 
discussion  of  the  law  of  monopoly  price,  so  that 
our  readers  may  at  once  know  that  power  over 
price  does  not  include  all  the  power  that  belongs 
to  monopoly. 

*  On  p.  48  of  his  work,  Les  Industries  Monopolisies  aux 
Etats-Unis,  M.  de  Rousiers  uses  these  words:  "  A  partisan 
of  the  trust  said  to  me, '  The  Pennsylvania  Railroad  could 
not  refuse  the  cars  of  a  competitor  of  the  Standard  Oil  Com- 
pany, but  nothing  could  hinder  it  from  side-tracking  them.' " 
G  _  97 


MONOPOLIES    AND    TRUSTS 

So  far  as  price  is  concerned,  the  power  of  monop- 
olies consists  not  merely  in  raising  prices,  but  also 
in  lowering  them.*  The  railways  can  ruin  a  manu- 
facturer or  dealer  just  as  well  by  lowering  as  by 
raising  the  prices  charged  for  their  services.  Sup- 
pose, for  instance,  that  prices  are  reduced  just  after 
certain  dealers  have  secured  a  large  supply ;  then 
their  competitors  can  undersell  them.  If  those 
"  on  the  inside  "  get  a  suggestion  or  a  "  tip  "  that 
freight  rates  will  be  lower  at  such  and  such  a  time 
after  their  rivals  have  laid  in  their  supplies,  the  fa- 
vored ones  can  ruin  those  over  whom  they  have 
so  marked  an  advantage. 

It  is  by  lowering  freight  charges,  it  is  alleged, 
that  railways  crush  out  independent  manufacturers 
in  Colorado.  The  writer  has  been  told  by  a  gentle- 
man who  may  be  regarded  as,  in  a  peculiar  degree, 

*  The  limits  of  the  power  to  lower  prices  are  found  in  the 
resources  of  the  monopolist,  and  these  are  so  variable  that 
it  does  not  appear  possible  to  formulate  any  scientific  gener- 
alization concerning  them.  These  resources  include  credit, 
and  in  the  case  of  monopolies  with  immensely  valuable  fixed 
and  specialized  capital,  like  railways,  an  unprofitable  busi- 
ness may  be  continued  for  years,  the  losses  amounting  to 
millions,  and  possibly,  in  some  cases,  to  tens  of  millions,  be- 
fore the  end  is  reached.  This  power  of  continuing  business, 
even  at  a  loss,  for  so  long  a  time  is  sufficient  to  crush  out 
any  opponents  except  a  few  who  likewise  have  unusual  eco- 
nomic strength.  When  two  monopolistic  concerns  with 
gigantic  strength  engage  in  warfare  through  a  reduction  of 
prices  below  cost,  the  waste  of  wealth  involved  may  become 
a  matter  of  national  significance. 

98 


THE    LAW    OF    MONOPOLY    PRICE 

the  spokesman  of  the  best  and  most  conservative 
elements  in  Colorado,  and  who  is  himself  a  friend 
of  more  than  one  railway  president,  that  the  rail- 
ways, in  order  to  gain  their  end,  lower  the  freight 
charges  to  producers  in  the  East  whenever  manu- 
facturing competition  shows  itself  in  Colorado,  until 
they  have  crushed  out  production  in  that  State  ; 
and  that  they  then  raise  the  rates  again,  the  pur- 
pose being  to  keep  up  the  volume  of  freight  traffic 
from  the  East  with  the  high  charges  to  which  it  is 
subjected. 

Now  when  we  consider  monopoly  price,  we  have 
to  ask  primarily,  What  are  the  limits  of  the  power 
of  monopoly  for  raising  price  ?  What  is  it  that  the 
monopolist  has  control  over,  and  what  has  he  not 
control  over?  According  to  our  very  hypothesis, 
the  monopolist  has  control  over  the  supply.  He 
can,  for  the  time  being  at  any  rate,  furnish  much 
or  little  as  he  pleases.  He  can  ask  any  price  which 
he  pleases,  and  some  of  the  cruder  statements 
simply  leave  it  there.  But  there  is  something  that 
the  monopolist  does  not  have  control  over,  and  that 
is  demand  or  consumption.  And  it  is  in  demand 
or  consumption  that  the  monopolist  finds  the  limits 
of  his  power  with  respect  to  price.  The  gains  of 
the  monopolist  may  be  regarded  as  a  function  of 
two  interdependent  variables — to  use  a  mathemati- 
cal expression — the  number  of  sales  and  the  profit 
on  each.  What  the  monopolist  wants,  therefore,  is 
to  get  that  combination  of  number  and  profit  which 
will  give  him  the  maximum  net  returns,  or,  on  the 

99 


MONOPOLIES    AND    TRUSTS 

other  hand,  the  minimum  net  loss,  if  it  is  a  ques- 
tion of  loss,  as  on  an  unsuccessful  copyrighted  book, 
which  cannot  be  sold  at  a  profit. 

What,  then,  are  the  limits  of  monopoly?  The 
monopolist  constructs  a  sort  of  table.  In  one  way 
the  entire  thing  is  experimentation.  There  may  be 
a  certain  monopolized  article  or  service  for  sale. 
What  are  the  limits  of  price?  The  highest  price 
tried,  we  will  say,  is  one  thousand  dollars ;  but  as 
this  induces  no  sales,  there  are  no  profits.  The  low- 
est price,  we  will  say,  is  nothing;  the  demand,  per- 
haps, a  million ;  profits  are  less  than  nothing,  and 
there  is  loss.  Within  the  field  of  monopoly  there 
is  an  infinite  variety  of  prices  which  will  give  the 
highest  net  returns,  depending  upon  the  intensity 
of  the  want  in  each  case,  and  upon  the  resources  of 
those  who  demand  the  service  or  commodity.  As 
has  just  been  said,  it  is  simply  a  process  of  experi- 
mentation. We  have  a  demand  rising  as  price  de- 
creases; and,  on  the  other  hand,  the  profit  on  each 
unit  falling  as  the  price  decreases.  We  stop  at  the 
point  where  the  total  net  profit  from  increasing 
sales  just  counterbalances  the  decreasing  profit  on 
each  unit,  or  a  little  less  than  counterbalances  it.* 
We  stop  there,  because  if  we  were  to  carry  pro- 
duction further,  or  our  sales  further,  there  would  be 
a  smaller  total  net  return.     Let  us  take  the  street 


*  It  is  here  taken  for  granted  that  action  requires  motive, 
and  that  without  at  least  a  minimum  increment  in  profit, 
the  motive  of  action  would  be  wanting. 

ioo 


THE    LAW    OF    MONOPOLY    PRICE 

railway  business  as  an  illustration.  Assume  a  price 
of  five  dollars  for  a  ride.  In  Chicago  we  would 
have  but  little  traffic.  Occasionally  somebody 
would  want  the  service  then  and  there  sufficiently 
to  pay  five  dollars,  and  there  would  be  some  traffic. 
Put  the  charge  per  ride  down  to  four  dollars  or 
three  dollars,  and  traffic  would  increase.  Put  it 
down  to  five  cents,  and  there  is  an  enormous  in- 
crease. The  profit  will  probably  increase  greatly 
down  to  five  cents,  because  five-cent  fares  in  Ameri- 
can cities  induce  a  very  large  number  of  purchases  ; 
but  when  we  go  below  five  cents  to  three  cents,  the 
profit  on  each  unit  begins  to  fall  off  very  rapidly. 
Probably  it  is  not  ordinarily  advantageous  for  the 
monopolist  to  go  below  five  cents,  because  the  sales 
would  not  increase  sufficiently  to  offset  the  loss  in 
profit  on  each  passenger. 

There  is  a  variation  in  the  price  schedule,  and 
the  point  at  which  the  fall  in  prices  will  stop  varies 
according  to  the  resources  of  those  who  purchase. 
The  fall  in  prices  will  vary  from  time  to  time,  and 
from  country  to  country.  The  time  may  come 
when  in  Chicago  a  three -cent  fare  will  be  more 
profitable  than  a  five-cent  fare.*  It  is  quite  con- 
ceivable. And  it  is  conceivable  that  a  charge  of 
ten  cents  may  be  profitable  at  one  time  and  a  charge 

*  Recently  one  street-car  line  in  Chicago  has  tried  a  rate 
of  twelve  rides  for  a  quarter  as  an  experiment,  and  it  has 
been  said  that  the  increase  in  traffic  has  been  so  phenome- 
nal that  the  new  rate  may  prove  more  remunerative  than 
the  old  charge  of  five  cents. 

IOI 

LIBRARY 

WVfVERS.'TY  OF  CALIFORNIA 

RIVERSIDE 


MONOPOLIES    AND    TRUSTS 

of  five  cents  at  another.  In  California,  some  time 
ago, a  charge  of  ten  or  fifteen  cents — /.  t."  a  bit" — 
was  doubtless  more  profitable  for  many  small  ser- 
vices than  five  cents,  because  money  was  abundant, 
and  people  spent  it  freely. 

Similarly,  there  is  a  variation  from  country  to 
country,  just  as  from  time  to  time.  The  fare  which 
is  most  profitable  in  New  York  would  not  be  the 
most  profitable  in  Berlin,  because  in  the  latter  city 
we  would  not  go  down  so  far  relatively  into  the 
mass  of  the  people  with  a  five-cent  fare  as  we  do  in 
the  former.  If  we  stop  at  five  cents  in  New  York 
we  have  included  the  great  mass  of  the  people  in 
the  purchasers  of  street-car  service.  In  Germany 
this  would  not  be  so,  because  the  average  means  of 
the  people  are  less,  and  they  are  more  careful  about 
small  sums  of  money.  The  writer  has  little  doubt 
that  the  price  of  highest  net  returns  for  a  ride  on 
the  street  cars  in  Berlin  is  that  which  is  actually 
charged,  namely,  ten  pfennige  for  one  of  their  zones. 
Most  people  do  not  ride  more  than  a  zone.  The 
ordinary  man  in  Berlin  pays  just  ten  pfennige,  goes 
that  far,  and  then  stops  and  walks  a  little  distance. 
Even  were  the  charge  in  Berlin  not  limited  by  law, 
the  street-car  companies  there  would  probably  not 
wish  to  charge  more,  because  the  present  price 
yields  the  largest  net  rdturns. 

We  have  already  discussed  the  dependence  of 
monopoly  price  upon  the  law  of  highest  net  re- 
turns, but  something  more  fundamental  than  what 
is  found  in  the  ordinary  formulations  of  this  law  is 

1 02 


THE    LAW    OF    MONOPOLY    PRICE 

needed  to  supplement  it.  The  considerations  con- 
tained in  the  preceding  paragraphs  lead  to  a  new 
law  of  monopoly  charges,  which  the  writer  has  for- 
mulated as  follows :  The  greater  the  intensity  of  cus- 
tomary use,  the  higher  the  general  average  of  eco- 
nomic well-being,  and  the  more  readily  wealth  is 
generally  expended,  the  higher  the  monopoly  charge 
which  will  yield  the  largest  net  returns. 

We  may  adduce  the  customs  of  the  English  and 
of  the  Germans  with  respect  to  the  use  of  tea  and 
coffee  as  an  illustration.  The  English  use  relatively 
very  large  quantities  of  tea  and  very  little  coffee, 
being  strongly  attached  to  the  former  and  caring 
comparatively  little  for  the  latter.  The  statistics 
of  consumption  show  that  precisely  the  reverse  is 
the  case  in  Germany.  If  a  fiscal  monopoly  of  tea 
and  coffee,  therefore,  existed  in  both  countries,  the 
government  would  find  its  control  over  price  ma- 
terially influenced  by  custom.  England  is  a  coun- 
try in  which  there  is  a  higher  general  average  of 
economic  well-being  and  in  which  people  expend 
wealth  more  readily  than  in  Germany ;  and  so,  if 
other  things  were  equal,  the  monopoly  price  of 
coffee  would  be  higher  in  the  former  country  than 
in  the  latter.  But  as  coffee  does  not  have  a  strong 
hold  on  the  English,  a  high  price  would  discourage 
the  consumption  in  England  more  than  it  would 
in  Germany,  inasmuch  as  to  the  Germans  coffee 
comes  near  the  class  of  goods  designated  as  neces- 
saries. Custom  might,  therefore,  counteract  the 
higher  average  of  economic  well-being  and  the 

103 


MONOPOLIES    AND    TRUSTS 

greater  general  readiness  in  the  expenditure  of 
money  in  England  to  such  an  extent  that  monopoly 
prices  would  be  the  same  in  both  countries.  When 
we  come  to  tea,  however,  as  custom  reinforces 
wealth  conditions,  the  divergence  in  price  would 
be  very  great,  and  it  is  quite  possible  that  the  mo- 
nopoly price  of  tea  in  England  would  be  more  than 
twice  what  it  would  be  in  Germany. 

It  is  quite  natural,  then,  that  monopolists  should 
seek  to  draw  custom  to  their  aid.  This  is  done  by 
cultivating  habits  of  use  by  means  of  low  prices 
until  these  habits  become  so  fixed  that  the  use  be- 
comes almost  a  necessity.  It  is  shrewd  practice  to 
establish  low  prices  at  first  for  telephones  or  elec- 
tric lights,  so  that  their  use  may  become  general, 
and  then  to  raise  prices  when  these  services  seem 
to  those  who  enjoy  them  almost  necessities.  Prac- 
tices of  this  sort  are  so  common  that  the  reader 
will  probably  be  able  to  give  illustrations  which 
have  come  within  his  own  field  of  experience  or 
observation. 

Our  law  of  monopoly  charges,  then,  explains  vari- 
ations in  monopoly  charges  from  time  to  time  and 
from  place  to  place.  A  good  illustration  is  afforded 
by  the  fiscal  monopoly  of  tobacco  which  exists  both 
in  France  and  in  Austria.  It  is  possible  in  France 
to  put  far  more  taxation  *  into  the  price  of  a  given 

*  The  profits  on  tobacco  are  spoken  of  as  taxation,  inas- 
much as  the  monopoly  exists  primarily  for  the  sake  of  the 
public  revenue  which  it  yields.  The  monopoly  is  looked 
at  simply  as  one  method  of  taxation.    This  view  is  not 

104 


THE    LAW    OF    MONOPOLY    PRICE 

quantity  of  tobacco  than  in  Austria.  Indeed,  it  is 
reported  that  the  monopoly  price  of  tobacco  in 
France  is  such  that  it  includes  more  than  twice  the 
revenue  for  the  government  that  the  monopoly 
price  in  Austria  does.  It  is  stated  that  the  net 
revenue  to  the  public  treasury  derived  from  a  hun- 
dred pounds  of  tobacco  in  France  is  from  fifty  to 
sixty-eight  dollars,  whereas  in  Austria  it  is  less  than 
twenty-five  dollars.  Such  a  difference  in  revenue 
would  seem  to  indicate  either  a  striking  variation 
in  wealth  conditions  or  in  customary  use,  or  a 
marked  difference  in  skill  of  management.  The 
French  are  a  richer  people  and  spend  their  money 
more  readily.  If  they  did  not,  the  sales  of  tobacco 
would  so  fall  off  with  the  higher  price  necessary  to 
secure  the  revenue  that  the  government  would  de- 
rive a  larger  gain  by  lowering  the  price.  It  is,  then, 
apart  from  the  other  influences  mentioned,  because 
the  French  are  a  richer  people  that  the  great  dif- 
ference obtains.  It  is  for  the  same  reason  that  they 
are  able,  having  a  monopoly,  to  realize  a  greater 
profit  on  every  hundred  pounds  of  tobacco.  In 
Austria  the  government  must  be  content  with  less 
than  one-half  of  the  amount  which  France  derives. 
Of  course,  the  government,  having  a  complete  mo- 
nopoly, could  put  on  a  tax  which  would  make  the 
price  higher,  but  if  it  did  so,  the  sales  would  fall  off 
and  the  profit  would  be  diminished.* 

absolutely  correct,  but  it  does  not  require  criticism  in  this 
place. 
*  The  author  takes  these  facts  concerning  the  tobacco 
105 


MONOPOLIES    AND    TRUSTS 

Another  illustration  is  the  difference  sometimes 
found  between  the  prices  of  American  manufactures 
in  this  country  and  abroad.  In  order  to  secure  the 
most  remunerative  sale  of  a  patented  or  otherwise 
monopolized  American  article  abroad,  it  is  occasion- 
ally necessary  to  charge  less  than  in  this  country, 
because  if  the  American  prices  were  charged — say, 
in  Germany — the  sales  would  fall  off  and  the  article 
would  become  unprofitable.  A  friend  of  the  writer 
was  several  years  ago  offered  a  rate  of  $12.50  on 
sewing-machines  on  board  a  ship  in  Baltimore  Har- 
bor destined  for  Brazil,  whereas  he  could  not  have 
bought  them  to  be  sold  in  Baltimore  for  anything 
like  that  amount.  He  could  sell  them  in  the  Bra- 
zilian market  far  more  cheaply  than  in  the  Amer- 
ican market.  And  why?  Probably  because  those 
owning  and  manufacturing  the  machines,  having  to 
consider  the  price  which  would  yield  the  largest 
net  return  in  Brazil,  found  that  it  was  less  than  in 
this  country,  and  therefore  put  a  lower  price  on  the 
goods  destined  for  foreign  consumption  than  on 
those  destined  for  American  consumption.* 

monopoly  in  France  and  in  Austria  from  a  treatise  on  pub- 
lic finance,  and  he  assumes  no  responsibility  for  their  precise 
accuracy. 

*  It  is  also  said  that  one  reason  why  American  goods  are 
sometimes  sold  abroad  more  cheaply  than  at  home  is  that 
the  foreign  retailer  is  willing  to  take  a  lower  rate  of  profit. 
Other  reasons  given,  as,  for  example,  the  quicker  returns 
on  foreign  sales  in  the  case  of  agricultural  implements,  need 
not  detain  us  here,  as  they  do  not  affect  the  general  prin- 
ciple which  we  are  considering. 

106 


THE    LAW    OF    MONOPOLY    PRICE 

Another  illustration  would  be  the  charge  for 
books  in  England  and  in  this  country.  In  Eng- 
land there  is  a  class  of  purchasers  of  books  who 
will  buy  three-volume  novels  at  half  a  guinea  a 
volume,  and  consequently  this  price  is  a  profitable 
one.  The  American  publisher  does  not  find  it 
profitable.  The  price  which  yields  the  highest 
net  returns  in  England  is  higher  than  in  this  coun- 
try, and  that  for  two  reasons:  First,  because  a 
larger  number  of  people  of  considerable  means 
will  pay  the  higher  price ;  and,  secondly;  because 
if  the  price  were  to  be  lowered  there  would  not 
be  reached  so  great  a  purchasing  public  as  in  this 
country.  The  American  is  not  so  particular  about 
a  five -cent  street- car  fare,*  but  when  it  comes  to 
paying  seven  or  eight  dollars  for  a  book  he  is  more 
careful.  It  is  also  true,  as  just  stated,  that  it  is  not 
possible  to  reach  such  a  large  mass  of  readers  by 
lowering  the  price  as  in  America,  because  here  we 
have  a  large  mass  of  intelligent  but  not  highly 
trained  people,  and  that  class  can  be  reached  by 
putting  down  the  price. 

*  An  illustration  of  the  neglect  of  small  economies  by  the 
American  may  be  seen  any  day  in  the  city  of  Washington, 
D.  C.  The  street-railway  companies  in  that  city  sell  six 
tickets  for  twenty -five  cents,  but  charge  five  cents  for  a 
single  ride,  unless  six  tickets  are  bought.  The  possible 
saving  is  i6§  per  cent.,  but  the  number  of  people  who  neg- 
lect to  effect  this  saving  is  surprisingly  large,  as  is  demon- 
strated by  the  frequency  with  which  the  five -cent  fare  is 
paid. 

107 


MONOPOLIES  AND    TRUSTS 

This  also  illustrates  something  else.  It  illustrates 
the  difficulty  of  fixing  a  monopoly  price.  When, 
as  secretary  of  the  society,  the  writer  was  publish- 
ing the  monographs  of  the  American  Economic 
Association  for  several  years,  it  was  his  office  to 
put  a  price  on  the  monographs.  It  was  also  his 
duty  to  get  a  revenue  for  the  association,  because 
without  such  a  revenue  the  association  could  not 
continue  its  existence.  The  question  was,  If  the 
price  of  the  ordinary  monograph  is  put  down  from 
seventy-five  cents  to  fifty  cents,  will  there  be  a  suf- 
ficient increase  in  sales  to  counterbalance  the  loss 
in  profit  on  each  sale  ?  The  writer's  policy  was  to 
ask  the  higher  price.  Some  thought  that  he  was 
wrong,  but  there  was  no  evidence  that  by  lowering 
the  price  he  would  reach  a  large  class  of  people. 
He  believed  that  at  seventy  -  five  cents  he  reached 
the  class  of  people  who  would  read  these  mono- 
graphs, whereas  he  could  not  hope  to  reach  the 
working  people  or  any  very  large  class  of  people 
even  at  fifty  cents. 

We  have  now  shown  that  monopoly  causes  varia- 
tions of  price  from  time  to  time  and  from  place  to 
place ;  but  we  have  hitherto  assumed  uniformity  at 
the  same  time  and  place.  In  discussions  of  monop- 
oly, such  uniformity  at  one  particular  time  and  place 
is  generally  assumed.  As  Professor  Walras  has  well 
shown,  however,  monopoly  price,  if  left  to  itself,  is 
not  uniform  even  at  one  time  and  place.  Conse- 
quently, wherever  we  find  uniformity,  pressure  is 
shown.    Generally  there  does  exist  pressure  of  some 

1 08 


THE    LAW    OF    MONOPOLY    PRICE 

sort,  so  that  monopoly  cannot,  without  some  pre- 
text, charge  one  person  more  than  another ;  and  in 
the  case  of  the  great  monopolies  with  which  we  are 
chiefly  concerned  in  the  United  States,  there  is  a 
pressure  of  some  sort  which  at  one  particular  time 
and  place  compels  a  uniform  price.  But  where  the 
monopolist  is  free,  he  will  vary  the  price.  The 
price  will  not  be  uniform  where  there  is  a  possi- 
bility of  variation.  There  is  such  a  possibility  from 
country  to  country,  as  we  have  seen.  At  a  price 
of  one  hundred,  the  monopolist  reaches  a  certain 
number  of  purchasers ;  at  ninety,  he  reaches  an- 
other and  a  larger  number.  The  street  -  car  com- 
panies find  this  so,  and  therefore  reduce  the  price 
from  ten  to  five  cents  in  any  place  where  the  net 
gains  at  this  price  are  uniformly  the  greatest.* 
The  question  which  would  naturally  occur  to  them 
would  be,  Would  it  not  be  a  good  thing  if  we  could 
keep  our  ten-cent  customers  while  from  others  we 
accept  five  cents?  That  is  a  great  problem,  and 
one  upon  which  the  American  monopolist  has  not  as 
yet  worked  so  carefully  as  the  foreign  monopolist. 
The  monopolist  will  try  sooner  or  later  to  dis- 

*  The  elevated  railways  in  New  York  city,  several  years 
ago,  reduced  fares  from  ten  cents  to  five  cents,  although  no 
statute  compelled  the  management  to  do  so.  It  is  possible 
that  a  law  establishing  a  five -cent  fare  was  anticipated,  as 
only  the  veto  of  Governor  Cleveland  had  prevented  the 
enactment  of  such  a  law  a  short  time  before ;  but  it  is  also 
probable  that  a  larger  profit  was  expected  from  the  lower 
rate. 

109 


MONOPOLIES    AND    TRUSTS 

cover  some  way  to  reach  the  different  classes  of 
customers  with  different  prices.  Professor  Walras 
mentions  the  case  of  a  manufacturer  of  chocolate. 
He  puts  it  up  in  a  modest  wrapper  and  sells  it  at  a 
moderate  price ;  then  he  puts  up  the  same  grade 
of  chocolate  in  papier  glact,  calls  it  "  Chocolat 
Superfin,"  and  sells  it  at  three  francs  a  pound;  then 
wraps  it  in  gilt  paper  and  calls  it  "  Chocolat  des 
Princes,"  and  sells  it  at  four  francs  a  pound.  An- 
other, in  commenting  upon  Professor  Walras's  il- 
lustration, adds  that  this  chocolate  manufacturer 
omits  the  flavoring,  calls  the  resulting  preparation 
"Chocolat  de  SanteY'  and  charges  for  it  from  five 
to  seven  francs  per  pound. 

Another  illustration  is  found  in  the  custom  which 
certain  firms  practise  of  publishing  different  editions 
of  books.  They  get  out  their  high-priced  edition  to 
reach  one  class  of  customers,  and  then,  when  they 
have  exhausted  that  class,  they  get  out  a  cheaper 
edition  to  reach  the  class  below.  This,  however,  is 
true  of  the  English  publisher  to  a  greater  extent 
than  of  the  American. 

Wherever  possible,  then,  we  find  that  monopoly 
results  in  variation  in  prices  to  reach  different  classes 
of  customers.  The  reason  that  we  do  have  one  uni- 
versal price  in  many  cases  is  because  there  is  some 
sort  of  external  pressure  that  produces  one  price. 
The  street-car  and  the  railway  companies  could  not 
charge  you  ten  dollars  and  me  five  for  a  given  dis- 
tance. We  see  this  same  tendency  to  variation  in 
price  as  a  development  of  American  railways.    They 


THE    LAW    OF    MONOPOLY    PRICE 

try  to  suit  all  classes.  Some  trains  go  a  little  faster 
than  others,  and  for  such  a  higher  fare  is  charged. 
Then  there  is  an  extra  charge  for  drawing-room  cars, 
etc.  But  there  is  not  always  a  difference  in  quality 
commensurate  with  the  difference  in  price.*  An- 
other illustration  of  monopoly  price  is  afforded  by 
the  custom  of  charging  two  prices  for  gas,  one  when 
used  for  illuminating  purposes  and  one  when  used 
for  fuel  (cooking,  etc.).  It  is  well  known  that  the 
gas  is  in  both  cases  the  same,  but  is  simply  meas- 
ured by  two  meters.  The  gas  company  finds  that 
the  price  of  gas  which  will  yield  the  highest  net  re- 
turns when  used  for  illuminating  purposes  is  con- 
siderably higher  than  the  price  which  will  yield 
highest  net  returns  when  gas  is  employed  as  fuel, 
and  by  means  of  the  two  meters  maintains  the  two 
monopolistic  prices.  How  different  from  a  com- 
petitive price !  If  our  grocer  should,  when  selling 
us  flour,  ask  if  we  intended  to  use  it  for  cake  or 
bread,  in  order  to  charge  a  higher  price  for  the 
cake-use  than  the  bread-use,  we  would  regard  it  as 
a  piece  of  impertinence  on  his  part,  and  would  not 
at  all  submit  to  his  efforts  to  introduce  class  price. 
His  endeavors  would  be  altogether  futile.  There 
has  recently  been  observable  a  marked  tendency  in 
this  country  to  reach  different  classes  of  consumers 

*  Frequently,  first-  and  second-class  passengers  enjoy,  as 
a  matter  of  fact,  precisely  the  same  conveniences,  although 
they  pay  quite  different  prices  for  their  tickets.  Railways 
running  between  Buffalo  and  Chicago  afford  an  illustration 
of  this  statement. 

in 


MONOPOLIES    AND    TRUSTS 

with  different  prices  for  very  similar  goods  or  ser- 
vices, and  we  shall  probably  see  a  development 
along  this  line.  That  is  one  of  the  characteristic 
indications  of  monopoly — the  absence  of  uniform- 
ity of  price. 

A  difficulty  suggests  itself  at  this  point :  It  has 
been  suggested  that  individual  variations  in  prices 
of  non-monopolized  articles  and  services  are  found. 
This  is  true ;  but  it  is  true  only  in  so  far  as  compe- 
tition fails  to  do  its  perfect  work,  for  the  very  hy- 
pothesis of  perfect  competition  is  that  in  a  given 
market  at  a  given  moment  there  is  one  price,  and 
only  one  price,  for  any  article  there  offered  for  sale. 
The  truth  is,  however,  that  competition  does  its 
perfect  work  as  an  exception,  rather  than  as  a  rule, 
the  moment  we  leave  the  great  markets  in  which 
staple  articles,  like  wool,  cotton,  and  corn,  stocks 
and  bonds,  are  sold.  In  cases  where  we  have  to 
do  with  world-markets,  and  in  the  case  of  articles  in 
these  markets  which  fall  into  great  classes  with 
units  susceptible  of  indefinite  division  or  multipli- 
cation, we  have  something  like  perfect  competi- 
tion. In  other  cases,  competition  as  a  rule  simply 
sets  limits,  and  within  these  limits  a  bargaining 
process  determines  price — a  higgling  process,  a  bid- 
ding and  rejecting,  an  experimentation  with  offers 
on  either  side,  bluff  and  more  or  less  deception, 
an  attempt  on  the  part  of  each  side  to  read  the 
mind  of  the  other  side — all  these  constitute  bargain- 
ing, although  they  may  frequently  take  on  various 
refinements  of  form  in  a  highly  civilized  society. 

112 


THE    LAW    OF    MONOPOLY    PRICE 

If  we  take  the  case  of  a  sale  of  a  horse,  or  a  lot  of 
land,  and  ask  what  competition  does,  we  find  that  it 
simply  sets  limits,  and  frequently  very  wide  limits, 
within  which  the  buyer  and  seller  must  by  bargain- 
ing come  to  an  agreement  in  regard  to  price.  In 
all  these  cases  we  have  opportunity  for  variations 
in  price,  simply  because,  mixed  up  with  competi- 
tion, we  have  elements  persisting  which  resemble 
monopoly.  After  all,  when  we  consider  a  single  in- 
dividual horse  by  itself,  it  has  at  least  slight  differ- 
ences separating  it  from  every  other  horse,  and 
these  slight  differences  constitute  a  small  quasi- 
monopoly  element.  There  was  only  one  horse 
Dexter.  Each  lot  of  land  has  its  own  peculiarities, 
however  slight,  separating  it  from  every  other  lot 
of  land.  Similarly,  every  manufacturer  has  exclu- 
sive control  over  his  own  products,  and  to  the  ex- 
tent that  his  name  and  trade-mark  are  prized  he 
may  pursue  monopolistic  tactics,  as  does  the  manu- 
facturer of  chocolate  mentioned  by  Professor  Walras. 
Along  with  competition,  then,  there  is  frequently 
a  residuum  of  bargaining,  with  an  element  of  gain 
to  be  divided  by  the  bargaining;  and  the  amount 
of  this  gain  is  represented  by  the  distance  between 
the  limits  to  which  competition  forces  buyers  on 
the  one  side  and  sellers  on  the  other:  an  element 
of  gain  which  Mr.  John  A.  Hobson  has  designated 
as  "  forced  gain."  *    This  gives  opportunity  for  price 


*  In  his  forthcoming  book,  The  Economics  of  Distribu- 
tion. 

H  113 


MONOPOLIES    AND    TRUSTS 

variations  somewhat  like  those  in  monopolistic 
charges,  precisely  because  in  their  purchases  and 
sales  there  are  elements  akin  to  monopoly.  As 
competition  increases,  as  its  work  in  those  pursuits 
which  are  competitive  in  their  dominating  tendency 
approaches  perfection,  the  variations  in  charges 
from  individual  to  individual  and  from  class  to 
class  diminish;  whereas,  precisely  as  competition 
increases  in  its  intensity  in  competitive  pursuits  in 
the  United  States,  we  witness  an  increasing  de- 
velopment of  price-specialization  on  the  part  of 
monopolists. 

Monopoly,  then,  as  we  have  seen,  means  varia- 
tion in  price,  not  only  from  time  to  time  and  from 
place  to  place,  but  even  from  individual  to  individ- 
ual. Class  price,  however,  is  a  better  term  than  in- 
dividual price,  if  we  have  reference  to  the  condi- 
tions of  modern  industrial  society ;  for  monopoly 
price  to-day,  in  the  more  important  cases,  means 
class  price.  Where  there  is  no  pressure  brought 
to  bear,  the  monopolist  charges  prices  which  vary 
from  class  to  class  in  such  a  way  that  he  will  secure 
the  different  social  strata  as  purchasers  at  the  dif- 
ferent prices.  For  the  clearer  comprehension  of 
the  working  of  a  monopoly  in  the  matter  of  fix- 
ing prices,  we  may  derive  assistance  from  the  use 
of  various  hypothetical  cases.  Let  us  for  this  pur- 
pose construct  a  table  showing  the  number  of  sales 
of  a  monopolized  article  or  service  at  different 
prices;  the  expenses  involved  in  furnishing  the 
supply,  it  being  assumed  that  each  unit  involves  a 

114 


Table  I 

Number 
of  sales 

I.OOO 

Gross 
yield 

IO,000 

Expenses 
per  unit 

8 

Total 
expenses 

8,000 

2.000 

l8,000 

8 

1 6,000 

5,000 
IO.OOO 

42,500 
70,000 

8 
8 

40,000 
8o,000 

THE    LAW    OF    MONOPOLY    PRICE 

constant  expense   of  eight   (8);*   and  finally  the 
profit  remaining  to  the  monopolist: 


p  .  iMumDer  uross  .expenses  lotai  Profits 

of  sales  yield  per  unit         expenses 

10  1,000  10,000  8  8,ooo  2,000 

9  2,000  18,000  8  16,000  2,000 

2,500 
— 10,000 

If  the  monopoly  price  is,  let  us  say,  10,  and  the 
number  of  sales  1000;  then,  if  the  expenses  are  8 
per  unit,  as  indicated  in  the  table,  the  profits  will  be 
2000.  But,  according  to  this  table,  the  monopoly 
price  which  yields  the  highest  net  returns  is  8£,  be- 
cause that  yields  net  returns  of  2500 ;  so  that  if  one 
uniform  price  is  to  be  charged,  it  will  be  8£.f     But 

*  Here,  as  elsewhere,  we  introduce  a  simplicity  rare,  in- 
deed, in  the  world's  market,  but  this  simplification  renders 
it  far  easier  to  illustrate  the  principles  involved,  and  for 
present  purposes  introduces  no  error. 

t  Mr.  John  A.  Hobson,  in  his  discussion  of  the  "  Economic 
Powers  of  the  Trust,"  in  chapter  vi.  of  his  work  Evolution 
of  Capitalism,  has  fallen  into  misleading  errors  of  theory. 
He  says  very  truly  that  "  the  interest  of  a  trust  .  .  .  lies  in 
fixing  supply  at  the  highest  net  profits.  Now  the  net  prof- 
its of  producing  and  selling  any  specified  quantity  of  supply 
are  ascertained  by  deducting  the  expenses  of  production 
from  the  aggregate  takings  "  (gross  yield).  That  is  precise- 
ly what  we  have  done.  But  immediately  afterwards  Mr. 
Hobson  says  that  it  is  the  proportion  between  "  aggregate 
takings  "  and  expenses  which  determines  monopoly  price. 
Now  this  is  something  quite  different.     Matters  are  made 

"5 


MONOPOLIES    AND    TRUSTS 

the  thought  occurs  to  the  monopolist,  why  not  re. 
tain  the  sale  of  these  iooo  units  at  10,  and  also  the 
additional  iooo  units  at  g,  while  still  selling  3000 

still  worse  in  his  explanation  of  his  diagram  of  monopoly 
prices  and  monopoly  expenses,  for  he  there  says  that  "  pro- 
duction stops  where  profit  bears  the  largest  proportion  to 
the  expenses  of  production,  or,  in  other  words,  where  the 
area  of  absolute  takings  shows  the  largest  surplus  over  the 
area  of  aggregate  expenses."  Monopolistic  production 
stops  at  the  point  which  gives  the  largest  net  returns,  and 
net  returns  increase  as  long  as  production  yields  a  surplus 
over  expenses.  It  is  not  a  question  of  proportion  between 
profit  and  expenses,  but  a  question  of  surplus.  Let  us,  for 
illustration,  assume  that  expenses  are  10  and  gross  revenues 
20.  We  have  a  proportion  of  1  to  2.  Let  us  now  further 
assume  that  if  production  is  continued  we  have  expenses 
amounting  to  20,  and  gross  revenues  amounting  to  35.  The 
result  is  a  proportion  of  1  to  1.75  only,  but,  as  the  net  gain 
is  15  instead  of  10,  the  larger  production  is  preferable. 

Our  argument  assumes  that  if  capital  is  borrowed  to  en- 
large a  business  the  interest  paid  is  included  in  the  expense 
account,  and  naturally  it  is  advantageous  to  borrow  capital 
as  long  as  it  yields  a  surplus.  So  far  as  fixed  and  specialized 
capital  is  concerned,  we  need  not  have  regard  to  that.  The 
monopolist  wants  as  large  a  return  as  he  can  secure  from 
it,  but  finds  any  return  preferable  to  none.  Similarly  we 
may  neglect  fixed  expenses,  as  by  the  very  hypothesis  they 
cannot  be  altered.  But  all  variable  expenses  must  be  in- 
cluded under  expenses  when  we  determine  monopoly  price, 
and,  when  they  are  included,  monopolistic  production  con- 
tinues while  a  surplus  lasts,  as  in  this  way  the  largest  net 
returns  are  secured. 

The  further  treatment  of  Mr.  Hobson's  discussion  of  mo- 
nopoly price  is  deferred  to  that  part  of  the  general  work  on 

116 


THE    LAW    OF    MONOPOLY    PRICE 

additional  units  at  8£,  because  in  that  way  there 
will  be  a  still  larger  net  profit?  That  is  exactly 
what  the  monopolist  attempts  to  do;  and  the  rea- 
son that  this  point  has  been  overlooked  by  Ameri- 
can writers  on  the  subject — and  also  very  generally 
in  other  countries*  —  is  that,  so  far  as  the  great 
monopolists  are  concerned,  an  external  pressure  is 
brought  to  bear  which  secures  uniformity  at  one 
time  and  one  place.  That  is  the  case  with  street- 
car service  and  with  the  service  offered  by  steam 
railways,  etc.  But  even  in  this  country  there  is 
noticeable  a  development  of  classes  and  facilities 
for  travel  designed  to  secure  the  purchase  of  service 
on  the  part  of  the  public  at  variable  rates,  So  it  is 
essential  in  the  development  of  a  theory  of  mo- 
nopoly price  that  it  is  something  which  varies  not 
only  from  time  to  time  and  from  place  to  place,  but 
even  from  class  to  class.  So  far  as  any  large  num- 
ber of  sales  is  concerned,  the  monopolist  could 
hardly  treat  customers  as  individuals — that  would 

The  Distribution  of  Wealth  which  deals  with  "The  His- 
tory of  the  Theory  of  Monopoly."  It  should  in  this  place 
be  observed  that  the  author  is  as  far  as  possible  from  any 
desire  to  detract  from  Mr.  Hobson's  merits,  which  in  this 
connection  are  especially  great,  but  errare  humanum  est, 
and  Mr.  Hobson's  mistakes  and  self-contradictions  in  the 
chapter  referred  to  are  surprising  in  so  gifted  an  econo- 
mist. 

*  Professor  Walras  is  a  notable  exception,  as  his  clear- 
ness of  thought  on  the  subject  is  admirable,  although  he 
has  not  sufficiently  elaborated  the  point. 

117 


MONOPOLIES    AND    TRUSTS 

not  be  possible — but  he  can  treat  economic  classes 
as  economic  classes. 

Now,  according  to  our  table,  if  we  are  to  have 
a  uniform  price,  8^  will  be  the  monopoly  price, 
because  it  is  the  point  of  largest  net  returns.  We 
may  suppose  that  this  is  the  price  on  a  copyrighted 
or  a  patented  article.  But  it  is  quite  possible  that 
under  competition  8^  would  turn  out  to  be  the 
price  which  would  yield  normal  returns  on  the  capi- 
tal and  the  labor  involved.  The  point  to  which  at- 
tention is  called  is  that  the  monopoly  price  is  not 
necessarily  different  from  the  competitive  price.  It 
is  conceivable  that  this  price  of  8£  per  unit  of  ser- 
vice or  commodity,  which  the  monopolist  charges, 
because  it  gives  him  the  highest  net  returns,  is  pre- 
cisely the  price  which  would  be  brought  about  by 
competition.  Quite  likely  the  monopolist  may 
have  larger  profits  than  those  engaged  in  a  com- 
petitive business  would  have.  This  will  be  the 
case  if  the  monopolistic  method  of  doing  business 
is  cheaper  than  the  competitive  method.  It  is 
even  conceivable  that  8^  may  be  less  than  the 
competitive  price.  Doubtless  that  will  be  the 
case  in  some  instances.  It  is  quite  possible  that 
under  the  competitive  method  the  expenses  may 
be  so  great  that  the  necessary-supply  price  will  be 
higher  than  the  monopoly  price.  Let  us  suppose 
that  the  expenses  are  very  much  greater.  Then 
the  necessary-supply  price  will  be  higher  than  8£, 
the  monopoly  price.  It  is  conceivable,  again,  that 
the  wastes  of  the  competitive  method  in  adver- 

u8 


THE    LAW    OF    MONOPOLY    PRICE 

tising  and  in  high  expenses  in  bringing  the  prod- 
uct to  the  consumer  may  raise  the  actual  expenses 
of  the  producer  to  9  per  unit,  which  would  make 
the  competitive  price  necessarily  higher  than  the 
monopoly  price  ;*  but  8£  is  the  price  which  yields 
the  largest  returns,  because  the  returns  of  a  mo- 
nopoly are  a  function  of  two  variables,  as  we  have 
said — the  function  of  the  number  of  sales  and  the 
net  profit  per  unit.  Professor  Sidgwick  says  that 
we  may  assume  generally  that  in  order  that  a  mo- 
nopoly may  be  a  source  of  gain,  the  amount  sold 
within  a  certain  time  must  be  somewhat  less  than 
it  would  be  if  there  were  no  monopoly.  That  is 
not  necessarily  true.  The  number  of  sales  may  be 
still  greater  than  would  be  the  case  were  there 
no  monopoly,  because  the  monopoly  price,  even 
when  not  regulated  in  any  way  by  legislation,  may 
be  less,  and  under  some  circumstances  will  be  less, 
than  the  competitive  price.  In  general,  it  is  safe 
to  say,  on  the  basis  of  experience,  that  monop- 
oly price  is  higher  than  the  competitive  price,  but 
it  must  be  fully  understood  that  this  is  not  necessa- 
rily the  case.    Unquestionably,  one  of  the  objects  in 

*  The  theory  of  this  work  is  that  in  pursuits  which  be- 
long to  the  true  field  of  competition,  the  competitive  price 
will  not  be  permanently  higher  than  the  necessary-supply 
price  under  monopoly,  inasmuch  as  the  wastes  of  the  com- 
petitive order  are  off-set  by  its  gains:  in  other  words,  the 
author  in  this  particular  adheres  to  what  has  been  regarded 
as  most  fundamental  in  the  theory  of  the  classical  English 
school  of  economics  with  respect  to  competition. 

119 


MONOPOLIES    AND    TRUSTS 

the  attempted  formation  of  monopolies  is  to  raise 
the  price ;  but  actual  and  would-be  monopolists  al- 
most invariably  lay  emphasis  upon  the  economies 
of  monopolized  production;  and  they  aim  to  secure 
these  economies,  doubtless  frequently  deceiving 
even  themselves  as  to  what  is  possible  in  this  di- 
rection. These  would  -  be  monopolists  generally 
make  the  claim  that  they  will  offer  goods  or  ser- 
vices at  the  old  price,  or  even  at  a  diminished  price, 
but  they  do  not,  generally,  live  up  to  what  they 
claim. 

While,  as  a  rule,  it  is  probably  true  that  monopo- 
ly raises  price,  any  complete  theory  of  monopoly 
must  also  contemplate  those  cases  in  which  the 
price  yielding  the  highest  net  returns  is  positively 
less  than  the  competitive  price — the  gains  of  mo- 
nopoly coming  through  the  economies  of  monopo- 
lized production.  Some  of  the  monopolistic  gain 
doubtless  comes  in  that  way,  especially  in  the  case 
of  those  businesses  which  we  have  styled  natural 
monopolies ;  but  ordinarily  not  all  of  it,  as  a  rule.* 

In  close  connection  with  the  foregoing,  there  is 
something  else  to  be  noticed  in  the  matter  of  mo- 
nopoly price — that  the  monopoly  price  varies  with 
the  expense  of  production  and  with  the  taxes  on  the 
units  of  services  or  commodities;  taxes  being  in- 

*  The  reasons  why  we  may  believe  that  monopoly  price  is 
usually  higher  than  competitive  price — that  is  to  say,  the 
price  yielding  normal  returns  under  conditions  of  compe- 
tition —  are  given  at  greater  length  in  chapter  vi.  of  this 
work,  on  pp.  221-225. 

120 


THE    LAW    OF    MONOPOLY    PRICE 

eluded  here,  because  they  are,  from  the  point  of 
view  of  the  producer,  to  all  intents  and  purposes, 
expense.  In  the  case  illustrated  by  our  table,  we 
have  the  price  of  8£  yielding  the  highest  net  re- 
turns if  we  have  a  uniform  price,  the  expense  of 
production  being  8  per  unit.  Let  us,  however, 
consider  what  result  may  be  anticipated  if  the  mo- 
nopolist's expenses  of  production  fall  as  product 
increases.  We  may  roughly  illustrate  this  case  by 
a  modification  of  Table  I.,  found  on  page  115.  If 
we  let  the  expenses  per  unit  fall  from  8  to  7,  then 
to  6,  and  finally  to  5,  we  have  this  result: 


Table  II 

Price 

Number 
of  sales 

Gross 
yield 

Expenses 
per  unit 

Total 
expenses 

Profits 

IO 

I.OOO 

10,000 

8 

8,000 

2,000 

9 

2.000 

l8,000 

7 

14,000 

4,000 

H 

5,000 

42,500 

6 

30,000 

12,500 

7  10,000  70,000  5  50,000  20,000 

We  observe  that  in  the  case  of  falling  expenses, 
as  illustrated  in  this  table,  the  monopoly  price  is 
also  likely  to  fall.  Provided  the  fall  in  expenses 
is  a  considerable  one,  and  demand  is  considerably 
stimulated  by  the  decrease  in  price,  the  intelligent 
monopolist  will  reduce  prices,  and,  owing  to  econ- 
omic law,  will  be  obliged  to  allow  the  public  to 
share  in  the  gains. 

To  what  point  will  monopoly  price  fall  ?  It  will 
fall  to  that  point  where  the  reduction  in  price  per 
unit  to  secure  increased  sales,  multiplied  by  the 

121 


MONOPOLIES    AND    TRUSTS 

number  of  sales,  offsets,  or  more  than  offsets,  the 
fall  in  expenses  per  unit,  also  multiplied  by  the 
number  of  sales.  Let  us  suppose  that  in  Table 
II.  the  price  is  reduced  to  6,  and  that  as  a  result 
we  have  20,000  sales,  but  that  the  expenses  per 
unit  fall  only  to  4^;  it  being  assumed  that  with  a 
production  of  10,000  the  greater  part  of  the  econ- 
omies of  large-scale  production  have  been  secured. 
The  gross  yield  will  be  then  120,000,  expenses 
will  be  90,000,  and  profits  will  be  30,000.  Conse- 
quently it  will  be  in  the  interest  of  the  monopolist 
to  reduce  price  to  6.  Let  us  assume  that  a  fall 
in  prices  to  5  again  doubles  sales,  but  that  ex- 
penses per  unit  fall  only  to  4^.  We  will  then  have 
a  gross  yield  of  200,000,  total  expenses  of  170,000, 
and  profits  of  30,000.  It  would  then  be  indifferent 
to  the  monopolist  whether  or  not  he  extended  pro- 
duction to  40,000  units,  provided  he  regarded  prof- 
its alone.  We  may  safely  assume  that  as  he  has 
no  economic  motive  to  enlarge  production,  he 
would  stop  at  30,000.  Of  course,  we  do  not  here 
consider  the  prospects  of  future  gain  resulting  from 
a  still  greater  traffic,  but  we  have  regard  only  to 
conditions  at  the  given  moment.  If  we  go  a  step 
further  and  suppose  that  a  charge  of  4  per  unit 
adds  fifty  per  cent,  to  sales,  and  that  expenses  per 
unit  do  not  fall,  the  point  of  maximum  efficiency 
having  been  reached,  we  shall  have  gross  yield  of 
240,000,  expenses  255,000,  and  therefore  a  loss  of 
15,000.     Our  table  would  then  read  as  follows : 

122 


THE    LAW    OF    MONOPOLY    PRICE 


Table  III 

Price 

Number  of 
sales 

Gross 
yield 

Expenses 
per  unit 

Total 
expenses 

Profits 

IO 

I.OOO 

10,000 

8 

8.000 

2,000 

9 

2,000 

l8,000 

7 

I4,000 

4,000 

8* 

5,000 

42,500 

6 

30,000 

12,500 

7 

IO.OOO 

70,000 

5 

50,000 

20,000 

6 

20,000 

I20.000 

4| 

90,000 

30,000 

5 

40,000 

200,000 

4i 

170,000 

30,000 

4 

6o,000 

240,000 

4i 

255,000 

—  I5,000 

Price  will  then  fall  to  6  and  stop  there  under  the 
assumed  hypotheses,  which  include  a  choice  only 
among  the  prices  mentioned. 

The  action  of  the  intelligent  monopolist  will  then 
vary  according  to  the  classes  of  goods  with  which 
he  is  concerned  and  with  the  classes  of  people 
which  he  hopes  to  reach.  According  to  the  law  of 
"  marginal  utility,"  consumption  of  a  good  stops  at 
that  point  where  the  purchasers  regard  it  as  just 
worth  while  to  buy  the  quantities  sold.  Values 
may  be  high  for  small  quantities  and  low  for  large 
quantities,  finally  falling  to  zero,  when  all  wants 
are  satisfied,  as  value  depends  on  unsatisfied  wants. 
The  rapidity  with  which  values  fall  is  regulated  by 
the  elasticity  of  demand  in  each  case.  The  de- 
mand for  ordinary  articles  of  food  is  urgent,  but 
inelastic.  If  a  monopolist  had  control  over  the 
food  supply,  he  would  then  desire  to  let  people 
feel  hunger,  as  unsatisfied  desires  would  give  a 
very  high  price  for  food.  An  illustration  of  the 
movement  of  values  for  ordinary  articles  of  food  is 

123 


MONOPOLIES    AND    TRUSTS 

furnished  by  potatoes.  The  demand  for  these  is 
extremely  urgent,  and  in  a  year  of  scarcity,  owing 
to  the  reluctance  of  the  ordinary  man  to  change  his 
habits  of  consumption,  the  price  may  go  as  high  as 
one  dollar  a  bushel,  even  in  interior  towns.  When, 
however,  the  supply  is  larger  than  usual,  even  by  a 
comparatively  small  percentage,  price  falls  rapidly, 
and  in  cities  like  Madison,  Wisconsin,  it  is  not  al- 
together easy  to  sell  them  for  twenty-five  cents  a 
bushel,  while  in  some  country  districts  it  is  difficult 
to  find  persons  who  will  take  them  as  a  gift.  When 
we  come  to  articles  of  clothing,  the  demand  is  far 
more  elastic,  and  by  lowering  prices  for  good  cloth- 
ing large  new  strata  of  purchasers  can  be  reached. 
If  a  monopoly  of  this  class  of  goods  were  possible, 
the  monopolist  would  be  inclined  to  extend  pro- 
duction if  he  could  do  so  at  considerably  decreas- 
ing expense,  whereas  a  monopolist  of  articles  of 
food  supply  would  frequently  find  it  to  his  interest 
to  destroy  a  portion  of  the  supply,  as  a  destruction 
of  a  small  percentage  of  it  would  enlarge  profits 
enormously.*  This  line  of  thought  may  be  ex- 
tended indefinitely  and  illustrations  multiplied 
without  limit. 

It  may  be  true,  however,  that  the  monopolist, 
falling  into  routine  like  that  which  can  be  observed 
sometimes  where  a  prosperous  monopoly  has  long 

*  On  this  subject  the  author  may  refer  to  his  treatment 
of  value  in  his  Outlines  of  Economics  (College  edition),  book 
ii.  part  ii.  chaps,  i.  and  ii. 

124 


THE    LAW    OF    MONOPOLY    PRICE 

existed,  may  be  content  with  gains  already  his,  and 
prefer  to  "let  well  enough  alone"  rather  than  at- 
tempt a  policy  of  expansion  with  lower  prices  for 
the  prospect  of  higher  gains ;  for,  apart  from  the 
effort  involved,  a  new  move  is  always  attended  with 
uncertainty  in  its  outcome.  But  even  if  the  mo- 
nopolist does  reduce  prices  and  build  up  a  large 
business,  he  will  not  usually  reduce  prices  to  a  point 
where  only  competitive  gains  will  be  secured,  and 
for  this  conclusion  reasons  will  be  given  hereafter.* 
It  has  been  assumed  in  this  case  that  the  fall  in 
expenses  is  considerable.  If  the  fall  should  be  very 
small — say,  a  mere  fractional  part  of  I — then  the 
monopolist  would  find  it  to  his  interest  simply  to 
pocket  the  gains.f  If  from  the  figures  in  Table  I. 
we  have  a  reduction  of  -^  per  unit  in  expenses  in 
each  case  after  the  first,  we  would  have  this  result : 


Table  IV 

Price 

Number 
of  sales 

Gross 
yield 

Expenses 
per  unit 

Total 
expenses 

Profits 

IO 

I, COO 

10,000 

8 

8,000 

2.000 

9 

2,000 

l8,000 

7& 

15,800 

2,200 

8* 

5,000 

42,500 

7t% 

39,000 

3.SOO 

7 

IO.OOO 

70,000 

7tV 

77.000 

—  7,000 

Let  us  next  take  an  illustration  which  the  writer 
holds  to  be  typical  in  manufacture,  agriculture,  and 

*  In  chap,  vi.,  pp.  221-225. 

\  Here,  as  elsewhere,  the  author  assumes  that  there  is 
choice  only  among  the  prices  named  in  the  table  (I).  Such 
restricted  choice  is  frequent. 

125 


MONOPOLIES    AND    TRUSTS 

commerce.  Expenses  are  assumed  to  decrease  to 
a  point  which  presents  indefinite  variety  in  the 
rapidity  with  which  it  is  reached,  and  then  when 
that  point  is  reached  the  expenses  are  assumed  to 
increase. 

We  add  to  Table  III.  two  classes  of  sales,  the  ex- 
pense increasing  by  £  per  unit  for  each  class,  and 
we  have  as  a  result  this  table : 


Table  V 

Price 

Number 
of  sales 

Gross 
yield 

Expenses 
per  unit 

Total 

expenses 

Profits 

IO 

1,000 

10,000 

8 

8,000 

2.000 

9 

2,000 

l8,000 

7 

I4,000 

4,000 

8* 

5.000 

42,500 

6 

30,000 

12,500 

7 

I0,000 

70,000 

5 

50,000 

20,000 

6 

20,000 

120,000 

4i 

90,000 

3O,O0O 

5 

40,000 

200,000 

4* 

170,000 

30,000 

4 

6o,000 

240,000 

4i 

255,000 

—  I5,000 

3* 

70,000 

235,000 

4i 

315,000 

— 90,000 

3 

8o,000 

240,000 

4f 

380,000 

—  140,000 

It  is  obvious  that  the  advantages  of  large-scale 
production  stop  at  20,000  units ;  for  beyond  that 
point  the  advantages  of  large-scale  production  are 
offset  or  more  than  offset  by  the  fall  in  price.  If  no 
regard  is  had  for  price,  a  production  of  60,000  gives 
the  maximum  production  which  can  be  had  before 
the  turning-point  is  reached,  and  expenses  per  unit 
begin  to  rise.  Even  if  the  producer  could  in  the  last 
two  classes  of  sales  increase  his  sales  without  a  re- 
duction in  price,  the  result  would  be  the  same,  for 
in  these  cases  at  a  price  of  4  we  would  still  have  a 

126 


THE    LAW    OF    MONOPOLY    PRICE 

loss  of  35,000  with  a  production  of  70,000,  and  a 
loss  of  60,000  with  a  production  of  80,000. 

But  according  to  the  general  law  of  prices,  it  re- 
quires a  fall  in  prices  to  increase  sales.  And  price 
realized  is  what  is  decisive  in  increasing  or  decreas- 
ing returns,  so  far  as  the  monopolist  is  concerned. 
When  the  individual  entrepreneur  is  obliged  to  lower 
prices  to  such  an  extent  that  his  net  money  returns 
begin  to  fall,  he  has  reached  what  is  for  him  the 
point  of  decreasing  returns,  even  if  his  expenses  are 
still  falling.  Production  is  carried  on  in  present 
society  for  money  values,  and  an  extension  of  the 
market  of  a  producer  or  dealer  into  a  field  which  has 
heretofore  belonged  to  others  may  involve  an  un- 
profitable fall  in  prices,  and  thus  set  a  limit  to  his 
expansion  and  afford  room  for  the  existence  of  com- 
petitors.* The  reasons  for  the  hypothesis  that 
Table  V.  represents  what  is  typical  in  agriculture, 
manufacture,  and  commerce  are  given  in  the  fol- 
lowing chapters,  in  which  the  attempt  is  made  to 
show  that  these  businesses  reach  the  point  of  de- 
creasing returns  for  the  entrepreneur  before  the  mar- 
ket is  supplied,  and  thus  are  competitive  in  their 
nature,  inasmuch  as  unified  action  of  all  producers 
in  any  one  of  these  lines  is  generally  difficult,  and, 
indeed,  as  a  rule,  impossible;  and  inasmuch,  further, 

*  This  subject  is  treated  in  an  interesting  and  original 
manner  by  Professor  John  R.  Commons,  in  his  discussion 
of  the  laws  of  increasing  and  decreasing  returns,  considered 
socially  and  individually,  published  in  his  Distribution  of 
Wealth,  chapter  iii,  §  1,  but  especially  in  chapter  iv. 

127 


MONOPOLIES    AND    TRUSTS 

as  could  such  unified  action  be  brought  about,  it 
would  not,  according  to  our  theory,  result  in  a  de- 
cisive increment  in  gain.  According  to  what  has 
been  shown  in  our  discussion  of  the  causes  of  mo- 
nopoly, if  the  law  of  increasing  returns  held  these 
businesses  would  be  monopolistic  in  character. 

Let  us  next  take  the  case  of  taxation  of  monopo- 
lized articles  and  assume  a  tax  of  I  per  unit ;  then 
the  price  yielding  the  highest  net  returns  will  no 
longer  be  &J-.  We  must  add  this  expense  of  I  per 
unit  on  account  of  taxes,  and  we  then  find  that 
manifestly  10  is  the  price  which  yields  the  highest 
net  returns,  and,  in  fact,  is  the  only  price  which 
yields  any.  Our  table,  therefore,  takes  the  follow- 
ing form : 

Table  VI 

Expenses  per  unit 
p  •  Number  Gross  (a  tax  of  one  Total  Profits 

of  sales  yield  per  unit  being       expenses 

included) 

10  1,000  10,000  9  9,000  1,000 

9  2,000  18,000  9  18,000  o 

8|  5,000  42,500  9  45,000  —2,500 

7  10,000  70,000  9  90,000  — 20,000 

When,  therefore,  the  tax  on  the  monopolized  pro- 
duction is  on  the  units  of  service  or  of  commodities, 
and  is  high,  it  is  probable  that  the  result  will  be  a 
higher  price  and  diminished  production. 

If,  however,  the  tax  on  each  unit  is  relatively 
small,  the  monopolist  will  frequently  be  obliged  to 
bear  it.  The  charge  paid  by  the  street-car  com- 
panies of  Baltimore  for  the  privilege  of  using  the 

128 


THE    LAW    OF    MONOPOLY    PRICE 

streets  affords  an  illustration.  It  is  nine  per  cent, 
of  the  gross  revenue,  which  amounts  to  a  little  less 
than  half  a  cent  on  each  five-cent  fare.  Now,  even 
if  the  Baltimore  companies  were  not  restricted  to 
five  cents  by  law,  it  is  quite  possible  that  a  six-cent 
fare  would  cause  such  a  falling  off  in  traffic  as  to 
reduce  the  profits  of  the  business. 

It  is  important  to  emphasize  this,  because  the 
statement  is  frequently  made  that  taxes  on  mo- 
nopolies come  out  of  the  monopolist,  and  do  not 
rest  on  the  general  public.  That  is  true,  if  the 
taxes  are  fixed  and  definite  sums,  or  if  the  taxes 
are  laid  upon  net  revenue.  Let  us  take  the  cases 
indicated  in  Table  I.,  and  let  us  suppose  that  the 
tax  in  each  case  is  just  exactly  iooo.  Then  the 
highest  net  return  would  be  1500,  and  the  price  of 
highest  net  return  would  be  8£.  If  we  take  off 
from  the  profits  a  certain  definite  sum,  we  do  not 
change  any  of  the  factors  which  determine  price, 
and  the  monopolist  will  therefore  gain  nothing,  but 
will  even  lose  if  he  changes  his  price.  The  only 
thing  that  he  can  do,  then,  is  to  bear  the  taxation 
himself.  Next  suppose — to  take  the  other  alterna- 
tive— that  the  taxation  is  in  proportion  to  net  re- 
turns. Take,  for  instance,  ten  per  cent,  of  the  net 
returns,  and  we  shall  have  a  result  like  that  in  the 
case  of  taxation  in  definite  amounts.  We  shall 
have  the  same  price,  the  same  number  of  sales,  the 
same  gross  revenue,  etc.,  if  we  take  just  a  certain 
percentage  and  still  leave  net  returns,  provided  we 
do  not  take  away  such  a  proportion  of  the  profits 
1  129 


MONOPOLIES    AND    TRUSTS 

as  to  stop  production ;  but  this  we  shall  sooner  or 
later  accomplish  if  we  diminish  the  advantages  of 
the  taxed  business  to  such  an  extent  that  those 
engaged  in  it  will  prefer  to  leave  it  for  other  busi- 
nesses or  occupations  open  to  them.  So  one  must 
be  cautious  in  discussing  this  subject  of  the  taxa- 
tion of  monopolies.  To  repeat,  if,  on  the  one  hand, 
the  tax  is  one  that  adds  materially  to  the  expense 
of  production  per  unit  of  service  or  commodity, 
then  the  producer  will  probably  find  it  to  his  ad- 
vantage to  raise  the  price  and  to  diminish  produc- 
tion. It  will  depend,  of  course,  upon  the  relation 
between  the  amount  of  the  tax  and  the  diminution 
in  production  due  to  the  greater  price.  If  the  tax 
is  as  much  as  I  in  Table  I.,  the  tax  according  to 
our  assumed  hypotheses  would,  as  we  have  seen, 
raise  prices  and  diminish  production.  We  can, 
however,  state  the  principle  in  more  general  terms 
as  follows :  If  there  is  a  higher  price,  which  with 
the  resulting  diminished  production  will  cut  off  less 
from  profits  than  the  loss  which  the  monopolist 
would  suffer  should  he  assume  the  tax  without  a 
change  in  price  or  production,  prices  will  be  raised. 
If,  on  the  other  hand,  the  tax  is  a  fixed  sum,  or  is 
proportioned  to  net  revenue,  then  no  new  factor  en- 
ters which  enables  the  monopolist  to  throw  a  part 
of  the  burden  upon  the  public  by  means  of  increased 
price. 

We  have  in  all  our  tables  taken  certain  hypothet- 
ical cases,  and  used  definite  numerals.  We  could, 
without   any   alteration   in  results,  construct  any 

130 


THE    LAW    OF    MONOPOLY    PRICE 

number  of  similar  tables  with  hypothetical  cases. 
It  is  also  possible  to  construct  similar  tables  with 
algebraic  symbols,  which  would  give  the  conclu- 
sions a  more  general  and  abstract  form ;  or  the 
graphical  method  could  be  employed  for  illustra- 
tion. The  more  general  and  abstract  forms  of  rea- 
soning would,  however,  give  no  different  results, 
and  would  be  difficult  for  non-mathematical  readers 
to  follow.* 

Professor  Sidgwick  is  much  troubled  by  the  case 
of  a  monopoly  which  is  confronted  by  another  mo- 
nopoly, and  he  says  in  his  treatment  of  monopoly 
price  that  this  is  beyond  the  range  of  economic 
science.  But  this  is  not  so.  We  have  already  seen 
that  what  competition  does  is  simply  to  set  certain 
limits  within  which  bargaining  can  take  place.  Now 
when  we  have  monopoly  against  monopoly,  we  have, 
of  course,  no  opportunity  for  competition,  and  bar- 
gaining assumes  a  large  place.  That  is  all.  We  do 
not  have  such  narrow  limits  set  to  the  bargaining 
as  we  do  in  a  case  where  there  is  competition.  But 
even  where  there  is  competition  in  ordinary  deal- 
ings, there  is  room  left  for  bargaining.  There  is  a 
certain  margin  between  necessary-supply  price  on 
either  side,  but  when  we  have  monopoly  versus 
monopoly  we  do  not  have  competition  drawing  the 
buyers  and  sellers  together,  and  there  is,  therefore, 

*  It  is  scarcely  necessary  to  tell  the  economist  that  the 
subject  of  price  is  one  which  receives  further  treatment  in 
the  author's  general  work  on  The  Distribution  of  Wealth. 

131 


MONOPOLIES    AND    TRUSTS 

frequently  a  wide  range  of  possible  prices.  The 
actual  price  within  this  range  must  be  determined 
wholly  by  bargaining.* 

Another  consideration  is  brought  forward  by  the 
question,  How  will  monopoly  price  affect  future  sup- 
plies? It  is  intimated  by  Professor  Sidgwick  that 
the  monopolist  looks  ahead  and  asks  himself,  What 
will  be  the  effect  of  bearing  down  too  heavily  upon 
the  seller  who  sells  an  article  of  which  the  monop- 
olist is  a  purchaser?  We  are  speaking  about  the 
buyer  as  the  one  having  the  monopoly.  He  asks, 
How  will  it  affect  the  future  supply  ?  Professor 
Sidgwick  applies  this  to  the  case  of  labor,  and  inti- 
mates that  the  purchaser  of  labor  power,  even  if  he 
has  a  monopoly  in  a  large  market,  will  ask  himself, 
What  will  be  the  influence  upon  future  labor  sup- 
ply? His  implication  is  that  the  monopolist  will 
not  press  down  so  hardly  and  heavily  upon  labor 
as  to  cut  off  future  supply.  But  the  evidence  af- 
forded by  the  modern  industrial  world  leads  us  to 
believe  that  ordinarily  the  monopolist  does  not  look 
a  long  way  ahead,  so  far  as  the  purchase  of  supplies 
is  concerned.  Quite  generally,  the  monopolist  wishes 
rather  to  reap  a  harvest  and  retire  from  the  field.  Cer- 
tainly, it  seldom  happens  that  any  one  in  the  posi- 
tion of  a  monopolist  with  respect  to  the  purchase 
of  labor  power  will  look  ahead  for  years  and  ask,  Is 

*  This  subject  will  be  discussed  at  greater  length  in  that 
part  of  the  present  work  on  The  Distribution  of  Wealth 
which  deals  with  competition. 

132 


THE    LAW    OF    MONOPOLY    PRICE 

not  the  course  I  am  pursuing  likely  to  diminish  the 
labor  supply?  We  do  not  find  any  action  on  the 
part  of  the  purchaser  of  labor  power  which  would  in- 
dicate that  this  is  the  case.  Take  the  example  of  the 
sweater  and  his  victims.  We  do  not  find  that  he  is 
held  back  from  exercising  his  full  power  over  them 
by  the  fear  that  he  will  cut  off  the  future  supply  of 
labor  power.  He  thinks  that  it  will  be  forthcoming 
from  some  source  ;  but  even  if  not,  he  says,  Before 
the  supply  dries  up  I  will  reap  my  harvest ;  I  will 
make  my  fortune. 

There  are  doubtless  some  cases  in  which  the 
monopolist  will  look  measurably  ahead.  Take  the 
case  of  a  canning-and-packing  establishment  which 
stands  alone  in  a  country  district.  That  establish- 
ment may  be  the  sole  purchaser  on  any  large  scale, 
let  us  say,  of  tomatoes,  accessible  to  farmers  in  a 
wide  region  of  country.  Of  course  the  owner  of 
the  establishment,  if  he  expects  to  do  business  year 
after  year,  will  not  in  one  year  be  likely  to  bear 
down  so  heavily  as  to  discourage  the  farmers  alto- 
gether. He  will  hold  out  the  hope  that  in  the  fut- 
ure the  price  of  tomatoes  will  be  remunerative.  He 
will,  at  least,  induce  them  to  believe  each  year  that 
next  year  the  state  of  the  market  will  be  better;  and 
he  cannot  do  this  if  prices  are  kept  below  a  certain 
point  which  only  a  knowledge  of  current  conditions 
can  determine. 

Another  consideration  which  has  to  be  taken  into 
account  in  the  determination  of  monopoly  price  is 
the  influence  of  surrogates  or  substitutes.    We  have 

i33 


MONOPOLIES    AND    TRUSTS 

seen  that  there  is  a  substitute,  more  or  less  perfect, 
for  any  monopolized  article  which  could  be  men- 
tioned. That  is  the  case  often  with  respect  to 
books.  It  may  happen  sometimes  that  one  must 
have  a  certain  book — this  would  be  the  case  with  a 
student  in  a  class  where  a  certain  book  was  pre- 
scribed. Often  in  such  cases  there  is  an  outside 
public  which  has  a  considerable  option.  Take  the 
novel,  for  example  ;  the  ordinary  purchaser  can  get 
along  without  any  one  particular  novel,  and  he  will 
frequently  purchase  something  else  than  the  book 
which  is  his  first  choice,  if  he  regards  its  price  as 
excessive. 

The  more  closely  a  substitute  approaches  in  its 
nature  a  monopolized  article  or  service,  the  more 
dangerous  it  may  become  to  the  monopoly.  Con- 
sequently, we  observe  a  tendency  on  the  part  of 
monopolists  to  secure  ownership,  or  at  least  effec- 
tive control,  over  those  substitutes  which  are  able 
to  render  similar  services  with  approximately  the 
same  expense,  and  we  have  as  a  result  allied  groups 
of  monopolies.  We  say  allied  groups  of  monopolies 
because  control  cannot  be  secured  unless  these  sub- 
stitutes lend  themselves  to  monopoly.  The  tele- 
graph and  telephone  afford  an  illustration  of  allied 
monopolies.  The  services  which  they  render  are 
so  similar  in  character  that  they  really  may  be  re- 
garded as  parts  of  one  whole,  and  by  united  man- 
agement effective  gains  are  secured  ;  the  gains  flow- 
ing primarily  into  private  pockets,  if  these  industries 
are  privately  owned  and  managed,  but  inuring  to 

i34 


THE    LAW    OF    MONOPOLY    PRICE 

society  at  large,  provided  they  are  owned  and  effi- 
ciently managed  by  the  public. 

Electric  lights  and  gas,  both  artificial  and  natural, 
constitute  another  allied  group  of  monopolies.  The 
service  supplied  by  kerosene  oil  is  similar,  and  it  is 
a  substitute,  but  not  an  effective  one,  as  for  many 
purposes — for  example,  all  public  lighting — it  ren- 
ders a  service  so  much  inferior.  On  the  other 
hand,  it  is  much  cheaper;  and  it  is  not  unnatural 
that  the  kerosene-oil  interests  should  reach  out  for 
control  of  gas  and  electricity,  exhibiting,  in  fact,  an 
inclination  to  secure  a  monopoly  of  all  illuminants 
save  the  sun  and  moon ! 

All  the  most  effective  means  of  intramural  and 
suburban  transportation  constitute  an  allied  group 
of  monopolies.  We  have  here  to  do  with  street- 
cars of  all  descriptions,  elevated  and  underground 
railways,  steam  railways  furnishing  suburban  ser- 
vice, since  all  these  must  sooner  or  later,  in  the 
nature  of  things,  fall  under  unified  control.  Delays 
in  coming  to  terms  of  agreement  may  temporarily 
— but  only  temporarily — prevent  this  consumma- 
tion. On  the  other  hand,  the  service  rendered  by 
cabs  has  been  so  inferior  for  most  purposes,  and 
also  necessarily  so  much  more  expensive,  that  as 
substitutes  they  have  not  been  able  to  influence  ap- 
preciably, if  at  all,  monopoly  price.  It  is  alleged, 
however,  by  those  who  should  know,  that  in  one  of 
our  greatest  cities  the  street -car  interests  opposed 
improved  pavements  lest  cabs  and  buses  should  be 
more  generally  used.     On  the  other  hand,  auto- 

i35 


MONOPOLIES    AND    TRUSTS 

mobiles  evidently  have  in  them  the  possibilities 
of  a  more  effective  substitute,  and  it  is  therefore 
not  surprising  to  find  street-railway  interests  reach- 
ing out  for  control  over  transportation  by  automo- 
biles. 

We  have  also  to  consider  the  influence  of  fashion 
upon  monopoly  price.  It  may  dictate  the  use  of  a 
certain  monopolized  article,  and  is  very  tyrannical. 
There  are  those  who  find  the  higher  prices  more  at- 
tractive, but  there  are  others  who  will  be  shut  off 
by  the  higher  prices.  Habits  of  consumption  will 
have  to  be  taken  into  account,  because  in  some 
cases  there  is  a  certain  flexibility  in  consumption. 
Professor  Patten  has  called  attention  to  considera- 
tions of  this  kind  in  his  discussions  of  consump- 
tion, and  for  this  he  deserves  praise;  but  he  has 
exaggerated  the  power  of  the  consumer  to  control 
monopoly  price.* 

The  conclusion  which  we  reach,  then,  is  that  mo- 
nopoly prices  are  generally  higher  than  competitive 
prices,  and  that,  as  a  rule  also,  monopoly  takes  a 
goodly  share  of  the  wealth  resulting  from  excep- 
tionally favorable  conditions  for  wealth  production, 
and  absorbs  a  considerable  proportion  of  the  in- 
creasing wealth  of  the  community ;  although  it  is 
true  that  where  there  is  flexibility  in  the  habits  of 

♦This,  as  well  as  the  other  parts  of  Professor  Patten's 
theory  of  monopolies,  the  present  writer  hopes  to  treat  at 
length  in  that  part  of  this  work  dealing  with  the  "  History 
of  the  Theory  of  Monopoly." 

136 


THE    LAW    OF    MONOPOLY    PRICE 

the  people  the  power  of  the  monopolist  will  be  re- 
stricted thereby,  but  only  to  a  limited  extent. 

We  see  in  monopoly,  then,  one  of  the  chief  rea- 
sons for  the  vast  concentrated  wealth  in  this  coun- 
try. The  reader  will  recall  the  author's  law  of 
monopoly  charges — that  the  monopoly  price  is  in- 
fluenced by  the  general  level  of  well-being  and  by 
the  readiness  with  which  people  spend  money.  The 
higher  the  general  average  of  well-being,  and  the 
more  readily  they  spend  money,  the  higher  will  be 
that  price  which  will  yield  the  largest  net  returns. 
We  have  these  conditions  meeting  in  the  United 
States.  We  have  a  high  average  of  well-being  and 
a  great  readiness  in  the  expenditure  of  money,  and 
consequently  we  have  a  high  monopoly  price.  So, 
to  borrow  the  language  of  our  tables,  if  in  Germany 
the  price  would  be  8£,  in  this  country  it  would  very 
likely  be  10. 

Let  us  suppose  that  prices  charged  for  monopo- 
lized services  or  commodities  fall  in  one  way  or 
another — that,  for  example,  they  are  reduced  by 
legislative  enactment,  as  street-car  fares  may  be — 
what  will  be  the  result?  It  will  largely  depend 
upon  how  generally  monopoly  prices  fall.  If  some 
monopoly  prices  fall  and  others  do  not,  there  is  at 
least  a  chance — indeed,  a  strong  probability — that 
part  of  the  gain  will  be  absorbed  by  other  monopo- 
lies, or  by  rent,  which  we  do  not  call  a  monopolistic 
gain.  Let  us  suppose,  for  example,  that  street-car 
fares  are  reduced  in  cities  generally  by  means  of  leg- 
islative enactment.     Now,  if  the  legislature  stops  at 

i37 


MONOPOLIES    AND    TRUSTS 

that  point,  there  is  danger  that  a  part  of  this  gain 
will  be  absorbed  by  rent -receivers,  that  rents  may 
go  up  to  correspond  with  the  fall  in  the  price  of 
transportation  in  the  city.  Henry  George  at  times 
said  that  this  would  be  the  sole  result.  This  can- 
not be  true,  however,  because  if  the  price  of  urban 
and  suburban  transportation  falls,  of  course  the 
amount  of  available  land  supply  is  increased,  and 
rents  tend  to  fall  in  that  way.  But  doubtless  a 
portion  of  it  would  be  absorbed  by  rent  or  by  other 
monopolies. 

But  if  the  price  of  monopolized  services  and  com- 
modities in  general  falls,  what  would  then  be  the 
result?  One  result  might  be  a  higher  standard  of 
life;  another  might  be  a  larger  population.  If, 
as  one  result  of  a  fall  in  the  price  of  monopolized 
articles,  there  were  earlier  marriages  and  larger 
families,  then  a  part  of  the  gain  would  be  eaten  up 
by  the  surplus  of  population,  and  a  part  by  rent- 
receivers,  on  account  of  the  increased  demand  for 
land.  But  it  is  quite  possible  that  people  might 
raise  their  standard  of  life,  and  raise  it  permanently, 
in  which  case  the  gain  would  be  absorbed  in  that 
desirable  way. 

It  is  one  of  the  offices  of  taxation  to  secure  part 
of  the  gains  of  monopolized  production  for  those 
higher  purposes  which  are  calculated  to  raise  the 
standard  of  life.  If  part  of  the  gains  of  monopo- 
lized production  is  taken  by  taxation,  it  may  be 
used  to  minister  to  the  higher  wants,  and  this  ac- 
tion by  government  will  result  in  a  higher  standard 

138 


THE    LAW    OF    MONOPOLY    PRICE 

of  living  and  not  in  a  larger  population.  For  ex- 
ample, it  may  be  used  for  educational  purposes  of 
all  sorts. 

One  other  question  presents  itself  in  this  connec- 
tion— or  two,  perhaps.  The  first  concerns  personal 
gains.  We  ought  not  to  call  personal  gains  monop- 
oly gains,  as  they  are  different  in  so  many  particu- 
lars from  those  which  result  from  social  opportuni- 
ties of  a  monopolistic  nature,  and  they  do  not  give 
a  monopoly  according  to  our  definition.  At  the 
most,  and  only  in  rare  instances,  can  we  call  them 
quasi-monopolistic  gains. 

Another  question  is,  Where  do  we  discover  mo- 
nopoly gains  in  bookkeeping?  Monopoly  gains  are 
a  large  item  in  wealth  distribution,  and  yet  when 
we  look  over  railway  accounts  and  private  books  we 
find  no  place  where  monopoly  gains  appear.  They 
are  carefully  covered  up,  so  far  as  may  be,  and  that 
is  done  consciously  and  purposely  by  the  managers 
of  monopolies.  Royalties  explain  a  part  of  monop- 
oly gains.  Occasionally,  they  are  reflected  in  high 
price  of  stock,  but  there  is  an  attempt  to  do  away 
with  this,  as  it  is  a  crude  and  primitive  way  to  ab- 
sorb monopoly  gains,  and  the  modern  capitalist  does 
not  want  monopoly  gains  to  be  thus  reflected.  He 
prefers  to  water  stock,  and  he  will  do  that  whenever 
there  is  an  opportunity,  adding  an  amount  of  stock, 
so  that  what  was  originally  a  one-hundred-dollar  in- 
vestment may  appear  to  be  a  four-hundred-dollar  or 
five-hundred-dollar  one,  and  the  returns  may  thus 
appear  to  be  no  higher  than  the  returns  on  capital 

i39 


MONOPOLIES    AND    TRUSTS 

invested  in  competitive  enterprises.  Stock-water- 
ing—  in  this  country,  at  any  rate — is  one  of  the 
chief  methods  of  absorbing  monopoly  gains.  High 
salaries  may  also  eat  up  part  of  the  monopoly  gains. 
It  is  well  understood  that  in  some  businesses,  and 
especially  in  the  case  of  railways,  the  only  real  in- 
vestment is  that  which  is  covered  by  the  bonds. 
Stocks  in  such  cases  represent  surplus.  It  is  hoped 
that  they  will  be  of  some  value  on  account  of  the 
surplus  value  of  monopolized  gains,  but,  as  a  rule, 
they  do  not  represent  any  real  investment.  This  is 
admitted  by  those  interested  in  the  business.  Any 
man  going  into  the  street-car  business  in  this  coun- 
try to-day  would  not  expect  that  the  stock  should 
represent  any  real  investment.  In  fact,  one  who 
should  propose  to  go  into  the  business  and  pay  for 
the  construction  of  street -car  lines  by  stock  invest- 
ment would  be  called  very  foolish  and  unbusiness- 
like. The  point  is,  that  through  various  methods, 
especially  through  stock-watering,  through  salaries, 
through  royalties,  sometimes  through  high  prices 
paid  for  purchases  of  commodities  or  land,  under 
some  term  or  another,  the  gains  of  monopoly  are 
mostly  covered  up. 

140 


CHAPTER   IV 

THE  LIMITS  OF  MONOPOLY  AND  THE  PERMANENCY 
OF  COMPETITION 

It  is  a  rather  strange  phenomenon  that  progress 
should  result  in  the  establishment  of  monopolies. 
It  is  a  mistake  to  think  that  monopolies  did  not 
exist  in  earlier  times.  They  did,  and  the  desire  for 
monopoly  is  about  as  old  as  the  human  race.  It 
could  not  be  described  better  than  it  is  in  Isaiah 
v.  8 :  "  Woe  unto  them  that  join  house  to  house, 
that  lay  field  to  field,  till  there  be  no  place,  that 
they  may  be  placed  alone  in  the  midst  of  the  earth  1" 
But  the  possibilities  of  monopoly  in  early  times  were 
much  less.  Monopoly  existed  locally  and  on  a 
much  smaller  scale,  was  often  due  to  legal  action,  and 
did  not  frequently  spring  up  spontaneously  out  of 
properties  inherent  in  business.  The  truth  is,  that 
since  the  industrial  revolution  the  increased  indus- 
trial field  is  largely  a  non-competitive  one.  But 
there  is  a  critical  question  which  still  confronts  us. 
We  have  admitted  that  a  certain  large  portion  of 
the  industrial  field  is  a  monopoly  field.  The  ques- 
tion still  confronts  us :  Is  competition  self -annihilat- 
ing?    Is  it  self-annihilating  through  the  entire  in- 

141 


MONOPOLIES    AND    TRUSTS 

dustrial  field  ?  Here  is  the  point  at  which  the 
socialist  separates  from  the  non  -  socialist.  It  is 
the  assumption  of  the  socialist  that  in  this  re- 
spect there  is  no  inherent  difference  between  busi- 
nesses ordinarily  designated  as  natural  monopo- 
lies and  other  businesses.  They  say  simply  that 
some  lines  develop  more  rapidly  than  others,  and 
that  some  exhibit  sooner  than  others  the  monopo- 
listic character.  If  this  be  true,  we  must  have  a 
reconstruction  of  our  industrial  order.  And  to  ad- 
mit this  is,  so  far  as  the  present  writer  can  see,  to 
admit  the  claims  of  socialism.*  But  he  does  not 
believe  that  we  must  admit  this.  This  is  the  rea- 
son why  he  is  not  a  socialist.  He  holds,  on  the 
contrary,  that,  so  far  as  we  can  now  see,  we  have 
superadded  to  the  old  competitive  field  a  new  non- 
competitive field ;  that  agriculture,  manufactures, 
and  commerce  are  still  competitive  in  their  nature, 
and  that  where  monopolistic  tendencies  exist  in 
any  of  these  lines  of  business,  especially  in  manu- 
factures, we  may  find  an  explanation  which  does  not 
necessitate  the  admission  that  these  businesses  are 
monopolies  in  their  very  nature. 

It  is  true,  as  Professor  Adolph  Wagner  says, 
that  manufacturing  producers  may  prefer  an  agree- 
ment to  competition;  but  to  prefer  an  agreement  is 
one  thing — to  effect  an  agreement,  real  and  vital  and 

*  Since  this  was  written  the  author  has  been  glad  to  see 
that  M.  de  Rousiers  takes  the  same  position  in  his  work 
Les  Industries  Monopolisms  aux  Etats-  Unis. 

142 


THE    LIMITS    OF    MONOPOLY 

lasting,  is  a  quite  different  thing.*  A  committee  of 
Congress  reports  that  "combination  grows  out  of, 
and  is  the  natural  development  of,  competition,  and 
that  in  many  cases  it  is  the  only  means  left  to  the 
competitors  to  escape  absolute  ruin."f  Is  that  true  ? 
It  remains  to  be  seen.  There  is  no  doubt  that  we 
have  had  pools  and  trusts,  and  that,  since  these  are 
now  becoming  obsolete,  another  form  has  succeeded 
them.  We  now  have  combinations  of  corporations 
into  new  corporations.  About  this  there  is  no  doubt. 
But  several  things  to  which  attention  has  already 
been  called  must  be  considered  before  we  take  up 
our  main  question  regarding  the  self-annihilation 
of  competition.     One  is  that  business  on  a  large 


*An  illustration  is  afforded  by  the  retail  book  trade, 
which  generally,  in  the  cities  of  the  civilized  world,  allows  a 
discount  of  some  20  per  cent,  from  the  list  price  of  books. 
The  author  remembers  that  for  some  twenty-five  years — 
and  doubtless  the  movement  goes  back  further  than  that — 
there  have  been  more  or  less  persistent  and  determined 
efforts  to  effect  an  agreement  which  should  result  in  abol- 
ishing this  discount.  These  efforts  have  thus  far  been  futile, 
although,  even  from  the  stand-point  of  the  purchasing  pub- 
lic, something  can  be  said  for  the  movement,  as  a  more 
generous  profit  would  make  possible  a  higher  grade  of  book- 
shops, especially  in  our  smaller  cities.  The  author  recalls  a 
very  determined  effort  some  twenty  years  ago  to  abolish  the 
discount  in  question  in  the  city  of  Berlin.  It  included  an 
attempt  to  cut  off  supplies  from  the  principal  offending 
firm  ;  but  it  all  came  to  nothing. 

t  Quoted  by  Professor  Alfred  Marshall  in  his  address  on 
Some  Aspects  of  Competition,  p.  1 5. 

143 


MONOPOLIES    AND    TRUSTS 

scale,  or  concentration  of  business,  and  monopoly 
are  two  different  things.  Monopoly  means  some- 
thing more  than  business  on  a  large  scale.  But 
how,  then,  shall  we  explain  some  of  these  large-scale 
businesses — manufacturing  businesses — which  are 
likewise  monopolies?  How  can  we  reconcile  our 
theory  of  competition  with  facts? 

It  has  been  suggested  by  the  author  that  the 
union  of  an  ordinary  business  with  a  natural  mo- 
nopoly may  explain  a  monopoly  when  it  is  found 
outside  of  the  monopoly  field.  If  a  manufacturing 
business  is  favored  by  the  railways,  it  may  become 
a  monopoly,  not  through  inherent  forces  tending 
towards  monopoly,  but  through  the  favor  of  the 
monopolistic  railway.  Tariffs  may  explain,  or  help 
to  explain,  a  few  of  these  monopolies.  Geographi- 
cal concentration  of  natural  riches  may  explain 
some.  Thus  what  we  have  already  admitted  with 
respect  to  monopolies  explains  at  least  a  goodly 
proportion  of  the  monopolies  in  the  field  of  manu- 
facturing. 

We  can  find  an  explanation  of  the  observed  ten- 
dency of  the  cattle  business  towards  monopoly 
without  being  obliged  to  admit  that  there  is  any- 
thing in  the  nature  of  the  cattle  business  which 
would  make  it  a  monopoly.  We  can  find  an  expla- 
nation of  the  sugar  trust  which  does  not  necessitate 
the  admission  that  it  is  in  its  nature  a  monop- 
oly. There  is  nothing  in  the  refining  of  oil  which 
necessitates  the  admission  that  that  business  has  an 

inherent  tendency  to  monopoly. 

144 


THE    LIMITS    OF    MONOPOLY 

The  author  has  a  gifted  friend,  an  engineer  and 
inventor,  who  once,  while  a  member  of  one  of  his 
classes  at  Chautauqua,  became  interested  in  the  dis- 
cussion of  monopolies  and  trusts,  and  took  issue 
with  him  concerning  his  classification  of  businesses 
into  those  naturally  monopolistic  and  those  natural- 
ly competitive.  This  friend  wrote  the  author  sev- 
eral letters,  of  which  three  are  quoted,  inasmuch  as 
they  present  admirably,  and  with  all  the  freedom  of 
friendly  correspondence,  the  arguments  in  favor  of 
the  position  that  in  all  businesses  there  is  an  inher- 
ent tendency  towards  concentration  and  centraliza- 
tion which  will  not  stop  short  of  monopoly.  The 
letters  read  as  follows:* 

"June  7,  1892. 
"  Dear  Professor  Ely, — When  we  were  in  Chau- 
tauqua we  had  a  little  discussion  on  the  subject  of  mo- 
nopolies. I  thought  that  back  of  and  beyond  all  special 
tendencies,  (as  in  the  case  of  natural  or  artificial  monop- 
olies), there  was  in  every  modern  industry  an  innate 
tendency  to  consolidation.     All  that  I  have  since  seen 

*  These  letters  have  not  been  revised,  but  are  printed  ex- 
actly as  the  author's  friend,  without  a  thought  of  publica- 
tion, wrote  them.  Doubtless  for  publication  the  writer  of 
them  would  wish  to  elaborate  many  points,  but  for  present 
purposes  the  statement,  it  will  generally  be  admitted,  is  ex- 
cellent. The  readers  of  this  book  will  join  with  the  author 
in  the  hope  that  his  correspondent  may  sometime  offer 
over  his  own  name  an  elaboration  of  his  position,  to  the 
effect  that  both  physical  laws  and  psychical  laws  favor  pro- 
duction on  a  constantly  and  indefinitely  increasing  scale. 
K  145 


MONOPOLIES    AND    TRUSTS 

or  read  has  strengthened  this  opinion,  and  as  I  am  now 
able  to  put  my  reasons  therefor  in  more  definite  shape, 
I  thought  I  would  write  to  you  upon  the  subject. 

"  My  theorem  is  that,  in  the  present  advanced  state  of 
civilization,  large  capital,  intelligently  applied,  tends  to 
make  every  industry  a  monopoly. 

"In  the  first  place,  as  you  have  well  said,  the  real 
reason  that  men  form  monopolies  is  that  they  can  make 
more  money  in  that  way  than  by  competing  with  each 
other.  If  they  can  make  more  money  by  a  monopoly, 
then  monopoly  is  inevitable.  My  task  is  therefore  tan- 
tamount to  proving  that,  in  the  most  advanced  stage  of 
civilization,  all  industries  whatsoever  are  becoming  in- 
dustries of  increasing  returns.  We  are  only  beginning 
to  enter  on  this  stage  in  America,  and  not  all  of  our  in- 
dustries have  reached  it  as  yet;  but  I  maintain  that  all 
will  do  so  ultimately,  unless  preventive  forces  unknown 
at  present  should  arise. 

"  Let  us  now  analyze  the  specific  forces  that  give  a 
business  with  large  capital  a  decided  advantage  over 
small  producers.     They  are  : 

"  i.  The  almost  universal  law  in  business  that  the 
greater  the  amount  of  goods  purchased,  the  cheaper  the 
price  per  piece.  This  at  once  places  the  small  pro- 
ducer at  a  decided  disadvantage,  since  his  large  rival 
can  procure  all  his  raw  material  and  supplies  at  a  much 
cheaper  rate,  and  can  therefore  undersell  him  without 
loss.  One  of  the  principal  advantages  the  large  manu- 
facturer gains  in  this  way  is  cheaper  freight  rates.  This 
advantage  has  frequently  been  abnormally  increased  by 
unfair  discrimination  on  the  part  of  private  owners  of 
natural  monopolies;  but  even  with  government  owner- 
ship of  railways  the  advantage  would  remain,  unless 

146 


THE    LIMITS    OF    MONOPOLY 

the  government  were  to  charge  the  same  rates  on  a  few 
pounds  as  on  a  train-load. 

"  2.  As  the  amount  of  business  increases,  the  fixed 
charges  become  a  decreasing  percentage  of  the  cost. 
This  is  peculiarly  the  case  with  the  cost  of  the  talent 
necessary  for  superintendence,  engineering,  etc.  A  large 
corporation  can  afford  to  hire  the  best  talent. 

"3.  A  rich  company  can  invest  enough  capital  to 
secure  the  maximum  efficiency  of  plant.  With  the  prog- 
ress of  invention  and  the  increasing  use  of  expensive 
machinery,  the  amount  of  capital  necessary  to  secure 
this  maximum  efficiency  constantly  increases. 

"  4.  Having  enough  capital  of  its  own,  a  rich  company 
is  not  compelled  to  do  business  on  borrowed  capital. 
In  times  of  panic  this  is  a  great  advantage.  A  rich 
company  is  not  obliged  to  do  business  from  hand  to 
mouth.  It  possesses  great  staying  power,  and  can  wait 
for  a  favorable  market  before  buying  or  selling. 

"5.  Large  capital  can  at  times  '  corner '  the  market. 
This  is  a  very  risky  business  when  production  can  be 
quickly  increased  in  answer  to  the  higher  price.  But 
there  is  a  class  of  commodities  the  demand  for  which 
comes  from  highly  civilized,  growing  communities,  and 
the  supply  of  which  is  either  limited  by  nature  or  is  in 
the  hands  of  primitive  peoples  who  use  antiquated  and 
wasteful  methods  of  production.  The  price  of  these 
commodities  is  surely  rising,  and,  with  adequate  capital, 
a  corner  may  be  secured  by  long  contracts  with  pro- 
ducers and  safely  held.  To  this  class  belong :  India- 
rubber,  gutta-percha,  boxwood,  ivory,  whalebone,  plati- 
num and  other  rare  minerals,  and  all  products  of  ani- 
mals or  plants  which  are  threatened  with  extinction. 
There  is  already  a  purchasing  trust  or  pool  which  con- 

i47 


MONOPOLIES    AND    TRUSTS 

trols  the  rubber  trade  at  Para  in  Brazil.  I  do  not  know 
whether  there  is  a  platinum  trust  as  yet,  but  the  price 
has  risen  rapidly  recently.  The  price  of  whalebone  has 
risen  from  fifty  cents  per  pound  some  years  ago  to  six 
dollars  a  pound  at  the  present  time. 

"Another  species  of  corner  arises  from  patent  monop- 
olies. It  is  obvious  that  large  capital  can  afford  to  pay 
the  highest  prices  for  valuable  patents.  Also  in  the  case 
of  men  whose  talents  are  unique,  the  large  capital  can 
pay  the  highest  salaries. 

"Where  there  is  strong  competition,  the  above-men- 
tioned forces  invariably  drive  out  the  small  producers. 
We  must  next  examine  those  forces  which  favor  the 
monopolies  after  they  are  formed,  thereby  offering  a 
constant  temptation  to  the  formation  of  new  monopolies, 
as  well  as  strengthening  those  already  in  existence. 

"  6.  Monopolies  can  save  many  wastes  arising  from 
competition : 

"  (a)  The  unnecessary  duplication  of  plants,  stocks  of 
goods,  retail  agencies,  etc.,  is  avoided. 

"  (b)  They  no  longer  require  a  large  army  of  competing 
commercial  travellers. 

"  (c)  The  large  expense  for  competitive  advertising  is 
saved. 

"  (d)  They  do  not  have  to  give  away  presents  with  their 
goods  in  order  to  sell  them.  The  American  Tobacco 
Company  (cigarette  trust)  claim  to  have  saved  $250,000 
a  year  since  their  consolidation  through  not  being  com- 
pelled to  give  away  cigarette  pictures. 

"  (<?)  When  there  is  strong  competition  there  is  always  a 
temptation  to  give  credit  to  unsound  purchasers,  with 
consequent  loss.     Monopolies  can  do  a  cash  business. 

"  7.  When  several  firms  owning  different  patents  on 
148 


THE    LIMITS    OF    MONOPOLY 

the  same  kinds  of  machines  consolidate,  all  the  im- 
provements can  be  combined  in  one  fine  machine,  to  the 
great  advantage  of  all  concerned,  the  public  included. 

"8.  When  an  almost  complete  monopoly  is  attained, 
production  can  be  closely  adjusted  to  probable  con- 
sumption. Greater  steadiness  in  production  follows 
with  consequent  saving. 

"9.  When  a  monopoly  is  the  principal  consumer  of 
those  articles  which  constitute  its  own  raw  materials,  it 
can  exert  a  powerful  influence  in  depressing  their  price. 

"  10.  Finally,  a  great  reason  for  consolidation  is  the 
ability  it  gives  to  a  monopoly  to  charge  high  prices. 
When  fierce  competition  has  forced  prices  below  the 
actual  cost  of  production,  the  temptation  to  form  a  pool 
or  a  trust  becomes  very  strong  indeed. 

"These  ten  forces  taken  together  constitute  an  irre- 
sistible power  making  for  consolidation.  But  their  ef- 
fect is  not  instantaneous.  The  modern  trusts,  like  all 
other  economic  institutions,  are  the  product  of  a  grad- 
ual evolution.  There  still  exist  powerful  forces  tending 
to  retard  their  formation.  Let  us  examine  the  strength 
of  the  retarding  forces.     They  are : 

"  1.  Economic  friction  and  the  natural  inertia  of  large 
masses  of  men  due  to  previous  habits  and  customs. 

"2.  The  trust  is  a  very  recent  development,  and  most 
business  men  do  not  yet  understand  its  advantages. 

"3.  Personal  business  pride.  Many  men  would 
rather  remain  at  the  head  of  their  own  business  than 
surrender  it  to  a  trust,  even  if  by  so  doing  they  could 
make  more  money.  But  frequently,  when  the  competi- 
tion gets  fiercer,  the  superior  strength  of  the  trust  con- 
quers, and  even  they  are  compelled  to  join  it  or  go  out 
of  business. 

149 


MONOPOLIES    AND    TRUSTS 

"4.  Personal  distrust  of  each  other  by  business  rivals. 
A  trust  cannot  usually  succeed  unless  it  has  the  consent 
of  the  majority  of  men  in  that  business.  Frequently 
this  cannot  be  obtained  and  the  trust  fails. 

"  5.  The  failure  of  trusts  organized  on  wrong  prin- 
ciples. This  deters  others  from  forming  trusts  for  a 
time.  Trusts  are  sometimes  organized  for  the  express 
purpose  of  cheating  the  stockholders,  just  as  some  rail- 
roads have  been.  Sometimes  the  men  organizing  trusts 
are  over- sanguine,  and  in  buying  out  rivals  pay  exces- 
sive prices  for  their  works.  Afterwards  they  are  unable 
to  make  the  business  pay  on  the  inflated  capitalization. 
Sometimes  it  is  attempted  to  organize  a  trust  with  insuf- 
ficient capital,  or  without  the  assistance  of  the  most 
powerful  firms  in  the  business.  These  attempts  neces- 
sarily fail. 

"  6.  It  is  sometimes  said  that  these  immense  corpo- 
rations are  unwieldy.  When  properly  and  honestly  or- 
ganized and  managed,  there  is  no  more  reason  why  a 
large  industrial  corporation  should  be  unwieldy  than 
a  large  railroad  corporation.  The  promptness  and 
strength  with  which  every  genuine  trust  takes  care  of 
its  own  interests  ought  to  convince  anybody  of  this. 

"  The  ultimate  consolidation,  despite  these  retarding 
forces,  is  clearly  shown  in  the  evolution  of  modern  in- 
dustrial organizations.  We  may  divide  their  history 
into  six  stages,  always  remembering  that,  as  some  indus- 
tries progress  more  rapidly  than  others,  it  is  possible  to 
have  all  six  stages  existing  simultaneously  in  the  same 
community. 

"  In  the  first  stage  we  have  a  large  number  of  small 
producers  competing  with  each  other.  Such  was  the 
case  with  most  industries  the   world  over  a   hundred 

150 


THE    LIMITS    OF    MONOPOLY 

years  ago.  It  is  still  largely  the  condition  of  agricul- 
tural production  at  the  present  time.  A  good  example 
of  this  stage  was  the  old  village  butcher. 

"In  the  second  stage  more  capital  is  required  by 
each  industry.  We  find  production  on  a  large  scale  in 
factories.  The  number  of  producers  has  decreased, 
but  the  product  has  vastly  increased.  Competition  is 
stronger,  each  firm  competing  in  a  wider  market.  A 
good  example  of  this  stage  is  a  well  -  equipped  small 
slaughter-house. 

"  In  the  third  stage  the  field  is  in  possession  of  per- 
haps less  than  a  dozen  huge  firms.  Competition  is  so 
fierce  that  it  becomes  an  industrial  war.  Each  firm 
competes  with  all  the  rest  everywhere,  and  prices  are 
ruinously  low.  In  these  vast  establishments  production 
is  enormously  increased.  Over-production  is  the  con- 
stant cry.  Armour's  huge  slaughter-house  in  Chicago 
some  years  ago  would  be  an  example  of  this  stage. 

"Then  slowly,  in  the  fourth  stage,  it  begins  to  dawn 
upon  the  manufacturers  that  they  are  losing  money  by 
competing — that  '  in  union  there  is  strength.'  The  first 
attempt  at  union  is  generally  a  pool,  by  which  term  I 
mean  an  agreement  to  raise  prices,  restrict  production 
and  apportion  it  among  the  various  members  of  the 
pool.  A  pool  is  generally  a  condition  of  unstable  equi- 
librium for  three  reasons : 

"  (a)  In  the  first  place,  as  each  member  still  retains 
the  control  of  his  own  business,  he  is  interested  in  sell- 
ing as  much  as  possible.  There  is  thus  a  constant  temp- 
tation secretly  to  cut  pool  prices  in  order  that  he  may 
sell  more  than  his  just  quota.  Each  member  also 
thinks,  that  he  ought  to  have  a  larger  quota.  Thus 
nearly   every   meeting   is   filled   with   accusations   and 

151 


MONOPOLIES    AND    TRUSTS 

wranglings  which  frequently  cause  the  disruption  of  the 
pool. 

"  (0)  Production  not  being  under  one  management, 
pools  do  not  get  the  benefit  of  the  economies  due  to 
consolidation.  The  advantage  of  a  pool  is  therefore 
not  in  cheapened  production,  but  in  the  fact  that,  by 
uniting,  the  manufacturers  have  created  a  'corner'  in 
their  goods.  As  in  the  case  of  any  other  '  corner,'  this 
stimulates  outside  production,  which  soon  proves  a  for- 
midable competitor. 

"  (c)  The  raising  of  prices  by  pools  causes  a  great  out- 
cry. Legislatures  hasten  to  pass  anti-trust  laws,  which 
are  really  anti  -  pool  laws ;  and  the  pool's  troubles 
thicken.*  But  I  think  these  laws,  while  usually  a  dead 
letter,  in  those  few  cases  where  they  are  enforced,  tend 
rather  to  aggravate  the  evil  they  were  intended  to  pre- 
vent. They  break  up  the  weak  and  unstable  pool;  in 
the  presence  of  the  common  enemy,  the  members  for- 
get their  personal  jealousies.  Thus  a  genuine  trust  is 
formed,  a  regular  corporation  which  buys  the  various 
works  outright.  I  do  not  see  how  the  true  trust  can  be 
touched  by  legislation  without  violating  all  the  laws  of 
private  property  in  the  means  of  production,  as  at  pres- 
ent understood. 

"The  distinguishing  characteristic  of  this  fifth  stage, 
that  of  the  trust,  is  the  large  profits  due  to  productive 
consolidation,  enumerated  above.  The  genuine  trust, 
when  once  properly  and  firmly  established,  is,  to  my 
mind,  invincible,  so  far  as  the  present  state  of  society  is 
concerned.     The  trust  can  sell  at  monopoly  prices,  and 

*  It  must  be  remembered  that  this  letter  was  written  in 
June,  1892. 

152 


THE    LIMITS    OF    MONOPOLY 

if  these  are  high  enough  to  invite  competition  its  facili- 
ties for  cheaper  production  ultimately  give  it  the  victory. 
The  public  has,  in  the  long  run,  to  pay  for  the  superfluous 
competing  plant,  as  in  the  case  of  competing  railroads. 

"  The  sixth  stage  is  when  the  original  promoters, 
having  made  fortunes  out  of  the  trusts,  water  the  stock 
or  sell  it  at  a  high  price,  where  it  yields  only  current  in- 
terest. It  then  goes  on  the  market  like  any  other  stock, 
and  is  purchased  by  ordinary  conservative  investors.  After 
this  its  quiet  history  resembles  that  of  a  great  railroad. 

"  The  so-called  '  Big  Four  Cattle  Combine '  in  Chicago 
passed  through  these  last  three  stages.  Mr.  Armour 
united  with  the  other  three  to  form  a  pool  which  was  so 
strong  and  included  so  many  productive  features  that  it 
was  virtually  a  trust.  The  last  part  of  the  history  I  am 
not  so  sure  of,  but  in  so  far  as  I  can  trust  what  informa- 
tion I  have,  it  is  as  follows:  When  the  recent  Illinois 
anti-trust  law  was  passed,  the  pool  was  changed  to  a 
trust,  and  its  stock  is  now  sold  on  the  New  York  Stock 
Exchange  as  the  W.  V.  Beef  Co. 

"  I  have  taken  the  business  of  slaughtering  cattle  for 
an  example,  because,  among  many  other  available  trusts, 
it  was  singularly  free  from  the  influence  of  natural  or 
artificial  monopolies.  The  business  of  slaughtering  cattle 
is  not  a  patent  monopoly.  The  cattle  trade  in  America 
does  not  depend  on  the  tariff,  neither  are  there  any  in- 
ternal revenue  taxes  on  it.  I  do  not  think  the  Company 
has  received  any  special  help  from  the  railroads,  any 
more  than  the  usual  advantages  a  large  shipper  has  over 
a  small  one.  This  monopoly  grew  up  at  the  very  centre 
of  the  fiercest  cattle  competition  in  the  world,  through 
the  operation  of  natural  forces. 

"  It  is  obvious  that  the  formation  of  monopolies  will 
153 


MONOPOLIES    AND    TRUSTS 

follow  the  line  of  least  resistance  ;  that  if  men  can  se- 
cure the  aid  of  artificial  or  natural  monopolies  in  certain 
industries,  those  industries  will  be  generally  the  first  to  be 
consolidated.  In  fact  it  follows,  if  the  above  theory  is  cor- 
rect, that  the  difference  between  natural  monopolies  and 
other  industries  is  largely  an  historical  one,  depending 
upon  the  stage  of  development  reached ;  the  natural 
monopolies  being  the  first  to  be  consolidated.  I  realize, 
of  course,  that  there  are  certain  characteristics  peculiar 
to  natural  monopolies.  The  vital  resemblance  lies  in 
the  fact  that  in  both  cases  the  owners  can  make  more 
money  by  consolidation  than  by  competition.  The  last 
industries  to  be  consolidated  will  probably  be  those  in- 
dustries which  at  present  are  in  the  earlier  stages  of  de- 
velopment. This  brings  us  to  agriculture.  Undoubted- 
ly at  the  present  time  agriculture  is  mainly  in  the  first 
stage ;  but  with  the  progress  of  invention  it  takes  on 
more  and  more  the  characteristics  of  manufacturing. 
(For  a  very  good  description  of  this  resemblance  of 
agriculture  to  manufacturing,  see  Encyclopedia  Britan- 
nica,  art.  "Agriculture,"  page  411 ;  the  advantages  of 
large  capital  and  consolidation  of  productive  forces  are 
pointed  out.)  In  the  one  matter  of  fertilizers  alone,  the 
largest  purchaser  secures  the  cheapest  prices — and  so 
on.  The  advance  waves  of  consolidation  have  already 
reached  agriculture ;  the  raising  of  cattle,  the  making  of 
butter  and  cheese,  the  production  of  milk  (about  New 
York  and  St.  Louis),  and  the  raising  of  prunes  in  Cali- 
fornia have  all  experienced  partial  consolidation.  And 
lastly,  in  California,  where  the  most  modern  methods  of 
American  agriculture  prevail,  it  is  said  {Recent  Economic 
Changes,  by  D.  A.  Wells,  p.  99),  that  the  cost  of  raising 
wheat  is  as  follows : 

154 


THE    LIMITS    OF    MONOPOLY 

"On  ranches  of  iooo  acres,  92.5  cents  per  100  lbs. 

"On  ranches  of  50,000  acres,  40  cents  per  100  lbs. 

"If  this  report  be  correct,  agriculture,  in  California 
at  least,  is  already  a  business  of  increasing  returns. 

M  Let  us  now  put  the  theory  to  the  test  of  experiment. 
Is  there  a  widespread  tendency  to  consolidation  in  mod- 
ern industry,  independent  of  the  characteristics  of  any 
particular  industry?  We  will  let  the  facts  speak  for 
themselves." 

Here  the  writer  of  this  letter  gives  a  list  of  fifty- 
two  "  trusts  "  in  the  United  States,  controlling  as 
many  different  industries,  and  having  an  aggregate 
capital  of  $500,000,000. 

"We  are  only  beginning  to  enter  on  the  era  of  trusts. 
Eighty-two  per  cent,  of  the  trusts  in  the  above  list  have 
been  formed  since  1888.  The  list  already  shows  how 
widely  diffused  the  trusts  are.  We  have  the  protected 
sugar  trust  in  America,  and  the  salt  trust  in  free-trade 
England.  We  have  the  whiskey  trust  aided  by  internal- 
revenue  taxes,  and  the  cotton -seed-oil  trust  free  from 
such  influences.  We  have  the  Standard  Oil  Trust  aided 
by  the  railroads,  and  the  celluloid  trust  where  freight 
rates  are  unimportant.  We  have  the  gas-fixture  trust 
built  on  present  patents,  and  the  English  Chemical 
Union  using  Le  Blanc's  old  soda  process  patented  at 
the  time  of  the  French  Revolution. 

"  Back  of  all  the  surface  phenomena  in  individual 
cases,  there  is  a  great  undercurrent  driving  all  modern 
industries,  some  slowly,  some  more  rapidly,  to  become 

monopolies. 

"  Signed        " 

155 


MONOPOLIES    AND    TRUSTS 

"July  16,  1892. 

"  Dear  Professor, — Since  writing  to  you  about  the 
trusts,  I  have  discovered  a  number  of  new  ones.  I 
would  like  to  add  them  as  an  appendix  to  my  letter. 
The  tariff  controversy  has  brought  to  light  a  large  num- 
ber. The  New  York  World  has  published  a  list  of 
'One  Hundred  Tariff  Trusts.'  A  number  of  these  are 
pools  and  a  number  are  already  down  in  my  first  list; 
the  rest  I  have  entered  in  the  appended  list. 

"As  I  believe  that  trusts  are  a  natural  stage  in  the 
evolution  of  industry,  I  cannot  agree  with  the  World  in 
holding  the  tariff  wholly  responsible  for  their  formation. 
No  one,  however,  who  has  noticed  the  perfect  wave  of 
trust  formation  that  followed  the  passage  of  the  McKin- 
ley  bill*  can  deny  that  it  powerfully  accelerated  their 
formation.  The  experimentum  cruets,  of  course,  is  the 
considerable  number  of  English  trusts.  I  confidently 
expect  that  in  self-defence  the  Tribune  will  have  to  pub- 
lish a  list  of  '  Trusts  in  Free-Trade  England.' 

"  I  note  that  the  wall-paper  trust  claims  to  have  saved 
$500,000  a  year  by  dispensing  with  300  competing  drum- 
mers after  the  consolidation. 

"  A  new  cigarette  company,  the  National  Cigarette 
and  Tobacco  Company,  has  been  formed  with  $2,500,000 
capital  to  '  compete '  with  the  American  Tobacco  Com- 
pany monopoly — another  case  of  West  Shore,  probably. 

"  I  enclose  the  advertisement  of  the  Michigan  Pen- 
insular Car  Company,  as  it  is  typical  of  the  mode  of 
organization  of  the  modern  trust. 

«  Signed,  " 

*  The  writer,  of  course,  refers  to  the  first  McKinley  bill, 
surperseded  by  the  so-called  Wilson  tariff  law. 

156 


THE    LIMITS    OF    MONOPOLY 

In  the  additional  lists  sent  in  this  letter  and 
in  a  subsequent  one,  our  correspondent  names 
forty-one  "trusts"  not  cited  in  his  earlier  list. 

"  November  16,  1895. 

"Dear  Professor, — There  are  some  other  points  in 
connection  with  trusts  that  have  occurred  to  me  since 
my  former  letters ;  namely,  in  connection  with  Professor 
H.  C.  Adams's  '  Industries  of  the  First  Class.'  (Relation 
of  the  State  to  Industrial  Action,  p.  55.)  A  portion  of 
that  class,  manufacturing  establishments,  is  covered  by 
my  former  letters,  but  in  the  other  portion,  the  retail 
trade,  we  encounter  a  force  very  different  from  the  for- 
mer almost  purely  physical  forces.  This  new  force  is 
the  free  will  or  personal  taste  of  the  ultimate  individual 
consumer. 

"  A  retail  dealer  must,  within  very  narrow  limits,  have 
what  a  customer  wants.  A  certain  amount  of  bull- 
dozing a  customer  will  submit  to,  but  if  a  man  wants  a 
toothbrush  you  cannot  sell  him  a  hairbrush  as  '  just  as 
good.'  The  success  of  a  retail  business  depends  almost 
entirely  on  the  ability  of  the  management  to  gauge 
accurately  the  probable  demand  in  quality  and  in  quan- 
tity. 

"As  to  the  quality  of  the  demand.  Past  demands  are 
known  to  all.  With  future  demands,  that  delicate  per- 
ception of  what  will  prove  popular,  depends  on  the  brain 
of  the  buyer  for  the  firm.  Now  that  brain  power  is  es- 
sentially in  the  nature  of  a  fixed  charge.  One  man  can  as 
easily  select  the  pattern  for  1000  yards  of  silk  as  for  10 
yards.  To  be  on  the  same  footing  as  regards  quality,  a 
small  establishment  must  pay  as  high  a  salary,  and  dis- 
tribute it  over  a  smaller  quantity  of  goods.     Another 

iS7 


MONOPOLIES    AND    TRUSTS 

factor  of  quality  is  the  variety  offered.  Other  things 
being  equal,  the  customer  will  save  his  own  time  by  going 
to  the  store  where  he  has  the  largest  variety  to  choose 
from.  This,  of  course,  favors  the  large  store,  which  has  a 
great  variety  all  in  one  place.  There  are  many  people 
out  West  who  buy  nearly  everything  they  need  from 
Montgomery  Ward  &  Co.,  of  Chicago,  largely  because 
they  have  a  large  stock  of  nearly  everything  in  one  sin- 
gle catalogue. 

u  As  to  the  quantity  of  the  demand.  There  is,  in  the  first 
place,  in  every  total  demand  a  certain  regular  undercur- 
rent depending  on  times  and  seasons.  Thus  there  are 
regularly  more  heavy  overcoats  sold  in  the  fall  than  in 
the  spring ;  more  water  drawn  off  on  Monday  than  on 
Sunday.  In  the  second  place,  all  demands  are  more  or 
less  ephemeral.  Fashions  change  and  qualities  improve. 
For  any  single  concrete  article  there  is  usually  a  birth,  a 
growth,  a  'craze,'  a  decline,  and  a  death.  These  two 
factors  can  be  met  by  a  steady  current  of  supply,  which 
is  completely  used  up  every  day,  the  goods  touching  the 
shelves  in  transit  only.  The  successful  prediction  of 
their  amount  depends  on  the  brains  of  the  management 
(vide  supra). 

"  Superimposed  on  these  two  steady  factors  is  an  al- 
most purely  chance  variation  or  caprice  in  the  demand. 
One  day  many  hairbrushes  are  called  for,  the  next 
many  toothbrushes,  the  third  day  neither.  It  will  not 
do  for  a  dealer  to  be  always  '  just  out'  of  the  particular 
thing  the  customer  wants  when  he  chooses  to  call.  He 
must  have  a  stock  on  hand  adjusted  to  the  probable 
amount  of  this  variation  in  the  demand.  But  are  we 
not  utterly  ignorant  of  the  probable  amount  of  a  purely 
chance  variation  ?     In  a  single  case,  yes  ;  in  the  mass, 

158 


THE    LIMITS    OF    MONOPOLY 

no.  The  mathematical  theory  of  probability  teaches 
that  the  larger  the  number  of  individual  variations 
around  an  underlying  mean,  the  greater  the  tendency  of 
these  variations  to  give  a  steady  value  of  that  mean. 
Those  running  over  tend  more  and  more  to  balance 
those  running  under;  and,  according  to  the  theory,  the 
mean  of  a  number  of  variations  differs  from  the  true 
underlying  mean  by  a  quantity  varying  inversely  as  the 
square  root  of  the  total  number  of  variations.*  Onr 
underlying  mean  is  the  steady  ground-swell  above  men- 
tioned. The  probable  deviation  of  the  transient  daily 
mean  from  this  must  be  provided  for  by  the  reserve 
stock  on  hand.  Thus  a  given  dealer  requires  a  cer- 
tain reserve  stock;  another  dealer  selling  on  an  aver- 
age 64  times  as  many  of  the  same  articles  in  a  day  re- 
quired a  stock  V64,  that  is,  8  times  as  large,  but  the 
interest  and  other  expenses  on  this  stock  are  distributed 
over  a  quantity  of  sales  64  times  as  large,  so  that  the 
stock  charge  on  a  single  article  is  only  £  as  much.  This 
gives  a  great  advantage  to  the  larger  firm.  Or,  to  put  it 
in  another  way :  had  there  been  64  separate  dealers,  they 
each  would  have  required  a  stock  of  1,  or  a  total  of  64; 
by  consolidating  they  would  only  need  a  total  stock  of  8, 

"  *  See  Merriman,  Text-Book  of  Least  Squares,  p.  89,  or  any 
other  work  on  the  subject.    The  probable  error  of  a  single 

observation  (variation)  is :  0.6745  \  / >  trie  probable  er- 

V  n — 1  . 

I        27/* 

ror  of  the  mean  of  the  n  observations  is :  0.6745  v/ •' 

r-^-r  V  *(*_,) 


the  ratio  of  these  is : 


O.6745  \/—  V 

v  n  —  i 
159 


MONOPOLIES    AND    TRUSTS 

and  could  invest  the  capital  represented  by  the  remain- 
ing 56  in  some  other  way.  There  is  an  unconscious  ac- 
knowledgment of  this  force  in  the  tendency  of  all  the 
stores  selling  a  certain  class  of  goods  to  congregate  in 
one  '  district '  in  a  city.  Each  one  hopes  to  catch  the 
customer  his  rival  cannot  at  the  moment  supply. 

"  These  forces,  favoring  the  larger  firm,  make  for 
consolidation  in  the  retail  trade,  and  will  in  the  long 
run  carry  this  form  of  industry  the  way  of  all  others. 
There  are  already  vast  aggregations  in  the  retail  trade 
in  every  great  city,  and,  if  one  were  to  ask  any  small 
retail  dealer,  almost  anywhere,  what  he  most  feared,  he 
would  answer — '  The  big  stores.' 

"Signed,         " 

It  is  interesting  to  examine  the  claims  made  by 
those  who  organize  industrial  combinations  of  the 
sort  popularly  called  trusts  when  they  present  their 
projects  to  the  general  public,  and  more  especially 
to  that  portion  of  the  general  public  comprising  in- 
vestors, and  to  compare  these  claims  with  the  ad- 
vantages of  the  trust  as  enumerated  by  the  author's 
friend.  The  author  has  examined  their  claims,  both 
in  the  advertising  columns  of  newspapers  and  in  the 
circulars  sent  out  by  their  agents  in  solicitation  of 
subscription  for  stocks  and  bonds.  It  is  plain  from 
such  a  comparison  that  the  hopes  of  those  entering 
these  combinations  and  putting  their  money  into 
them  are  well  described  in  these  letters.  The  au- 
thor has  before  him  as  he  writes  a  large  number  of 
circulars  and  newspaper  advertisements  which  af- 
ford abundant  illustration.     An  advertisement  of 

160 


THE    LIMITS    OF    MONOPOLY 

preferred  stock  of  the  American  Type  Founders' 
Company  is  a  good  example,  and  from  it  a  few 
quotations  will  be  made. 

First  of  all,  it  is  to  be  noticed  that  the  twenty- 
three  companies  and  firms  in  the  combination  are 
enumerated,  and  that  according  to  the  "  Vendor's 
Statement"  these  companies  and  firms  "manufact- 
ure and  sell  about  eighty-five  per  cent,  of  the  entire 
output  of  type  in  the  United  States."  After  ob- 
serving that  tariff  changes  cannot  affect  the  business 
unfavorably  on  account  of  the  export  business  in 
American  type,  due  to  its  superiority,  it  is  claimed 
that  the  "  excessive  expenses  "  of  the  past  will  be 
reduced  and  cutting  in  prices  will  be  stopped.  Con- 
centration will  save,  it  is  said,  "  expenses  and  rent 
of  a  large  number  of  duplicate  branch  offices,"  and 
will  practically  abolish  "  commissions  to  middle- 
men." A  very  large  saving  will  be  effected,  it  is 
claimed,  in  "  specimen  books  "  which  each  foundry 
has  heretofore  issued,  "  costing  one  foundry  over 
twenty  thousand  dollars  for  a  single  issue."  A 
large  saving  is  also  promised  in  the  expense  of  pro- 
ducing new  designs,  which  with  competing  com- 
panies involves  a  duplication  of  plant  "  at  great 
expense." 

If  we  should  go  through  the  entire  collection  of 
advertisements  and  circulars,  we  would  find  these 
same  points  brought  forward  again  and  again  in  a 
variety  of  forms,  but  we  would  come  upon  scarce- 
ly a  point  not  brought  out  already.  The  schedule 
of  questions  prepared  by  Professor  J.  W.  Jenks  for 
l  161 


MONOPOLIES    AND    TRUSTS 

the  use  of  the  Industrial  Commission  of  the  United 
States  in  its  investigation  of  "  Industrial  Combina- 
tions "  also  brings  forward  these  same  points. 

Let  us  now  take  up  those  causes  which,  it  is 
claimed,  are  operating  to  monopolize  every  kind 
of  business,  and  examine  them  one  by  one,  first 
reminding  the  reader  once  more  that  large-scale 
production  is  a  thing  which  by  no  means  necessa- 
rily signifies  monopolized  production.  But  before 
we  continue  the  discussion,  the  writer  wishes  to 
disclaim  any  desire  to  take  the  part  of  advocate  for 
either  the  one  side  or  the  other  in  this  controversy. 
His  desire  is  to  investigate  scientifically  the  forces 
which  give  shape  to  industrial  society,  and  he  ad- 
mits frankly  that  we  do  not  now  have  the  data 
which  would  enable  us  to  reach  mathematical  cer- 
tainty either  deductively  or  inductively.  He  seeks 
to  interpret  according  to  his  light  the  data  now 
available. 

To  pass  on,  then,  to  a  consideration  of  the  argu- 
ments presented  by  the  author's  friend,  it  is  said 
that  large  producers  enjoy  an  advantage  in  making 
purchases,  and  especially  in  the  purchase  of  railway 
service  in  the  transportation  of  freight.  Will  this 
stand  the  test  of  critical  examination  as  a  cause 
producing  monopoly?  Every  day  the  careful  ob- 
server may  witness  the  shrewd  man  making  small 
purchases  at  a  low  rate  which  could  with  difficul- 
ty be  duplicated  on  a  large  scale.  "  Bargains  "  may 
be  "  picked  up  "  in  a  small  way  as  well  as  in  a  large 
way.     Again,  if  one  wishes  to  purchase  on  a  large 

162 


THE    LIMITS    OF    MONOPOLY 

scale,  one  must  be  careful  lest  the  demand  raise 
price;  and  frequently  those  who  wish  to  make  vast 
purchases  divide  up  their  orders,  lest  they  suffer 
serious  disadvantage  from  the  very  magnitude  of 
their  operations.  This  is  more  marked  in  the  case  of 
some  valuable  things,  naturally,  than  in  the  case  of 
others.  Real  estate  would  furnish  the  most  marked 
illustration,  for  it  is  a  well-known  fact  that  consider- 
able purchases  within  a  restricted  area  raise  prices 
greatly.  The  purchase  of  fifty  lots  in  a  city  of  ten 
thousand  inhabitants,  if  the  purchaser  were  impru- 
dent in  his  methods,  would  raise  prices  by  a  very 
appreciable  percentage.  It  is  also  true  that  a  large 
demand  for  horses  on  the  part  of  one  person  can 
with  difficulty  be  satisfied  by  purchases  in  one  place 
without  an  increase  in  price.  Illustration  could  be 
continued  indefinitely ;  and  the  cases  in  which  a  large 
purchaser  is  at  a  disadvantage  can  be  frequently  seen 
by  any  keen  observer. 

The  writer  of  the  letters  evidently  had  in  mind 
the  merchant  who  places  large  orders  with  the 
manufacturer — buying,  for  example,  the  entire  out- 
put of  the  latter  for  a  number  of  years.  There  is 
no  doubt  that  the  result  would  be  a  concession  in 
prices ;  and  there  are  many  cases  in  which  the  pur- 
chaser of  large  quantities  of  commodities  has  a 
marked  advantage.  Normally,  however,  this  has 
its  limits.  One  reaches  sooner  or  later  the  point 
of  maximum  effectiveness,  and  beyond  this  there 
would  be  no  advantage  in  going.  Another,  pur- 
chasing in  equally  large  quantities,  would  have  as 

163 


MONOPOLIES    AND    TRUSTS 

great  an  advantage ;  and,  unless  aided  by  some  ex- 
ternal forces,  such  as  control  over  transportation 
agencies,  it  would  be  ruinous  for  one  person  to  at- 
tempt to  purchase  the  entire  supply  of  any  im- 
portant commodity.  When  a  daring  Chicago  op- 
erator a  short  time  since  attempted  to  secure, 
through  large  purchases,  the  control  of  the  world's 
supply  of  wheat,  the  result  was  higher  and  higher 
prices,  and  finally  his  ruin. 

Freight  rates  play  an  important  role  in  business, 
and  in  many  lines  they  enter  into  expenses  to  so 
large  an  extent  that  manufacturers  and  merchants 
favored  appreciably  are  able  to  drive  out  of  busi- 
ness those  who  are  not  favored.  That  is  fully  con- 
ceded. It  is  maintained,  however,  that  there  is  a 
limit  to  the  reduction  in  freight  rates  which  a  rail- 
way can  profitably  make  to  secure  large  shipments 
from  a  single  person.  It  is  generally  conceded  that 
a  railway  may  with  propriety  charge  relatively  less 
for  "  car-load  lots  "  than  for  a  few  pounds,  but  it  is 
questioned  whether  a  railway  may  go  further  than 
this.  At  any  rate,  in  this  case  we  again,  sooner  or 
later,  find  a  point  where  there  are  no  further  ad- 
vantages to  be  gained  in  freight  rates,  if  a  railway 
is  honestly  managed ;  and  the  tendency  in  the  case 
of  government  railways,  and  also  in  the  case  of  pri- 
vate railways  under  public  control — provided  they 
obey  the  laws — is  to  reach  this  point  with  com- 
paratively small  shipments.  Here  again,  then, 
critical  analysis  fails  to  discern  a  cause  inevitably 
operating  to  produce  monopoly. 

164 


THE    LIMITS    OF    MONOPOLY 

It  is  said  in  the  letter  that  the  fixed  charges  de- 
crease relatively  as  the  magnitude  of  the  business 
increases.  We  admit  that  in  the  case  of  natural 
monopolies  belonging  to  Class  II.  —  those  which 
arise  out  of  properties  inherent  in  the  business — 
this  is  true  to  an  extraordinary  extent,  and  is  one 
of  the  causes  operating  to  produce  monopoly. 
Railways  are  an  illustration.  It  is  true  that  in  a 
manufacturing  business  there  are  at  a  given  point 
in  its  growth  certain  charges  which  are  relatively 
stable,  and  which  may  be  designated  as  fixed 
charges.  A  superintendent  is  employed,  and  if  the 
business  is  on  a  large  scale  the  portion  of  the  sal- 
ary which  will  inhere  in  the  expenses  of  the  pro- 
duction of  each  article  will  be  relatively  small. 
There  must  be  a  certain  plant.  If  this  is  not  fully 
utilized,  then  that  part  of  the  cost  of  the  plant 
which  must  be  assessed  upon  each  unit  of  service 
or  commodity  will  decrease  as  production  increases 
until  the  plant  is  fully  employed. 

All  this  is  freely  admitted,  but  it  is  claimed  in 
reply  that  it  does  not  prove  that  we  have  here  to 
do  with  a  cause  of  monopoly.  A  point  of  maxi- 
mum efficiency  is  sooner  or  later  reached,  and  new 
fixed  charges  emerge  as  business  grows.  A  super- 
intendent who  can  be  had  for  fifteen  hundred  dol- 
lars a  year  has  to  give  way  to  one  who  can  com- 
mand ten  thousand  dollars,  fifteen  thousand  dollars, 
or  even  more.  The  bookkeeping  has  finally  to  be 
reorganized  and  made  more  expensive ;  new  build- 
ings must  be  constructed ;  expenses  of  an  entirely 

i6s 


MONOPOLIES    AND    TRUSTS 

new  sort  appear.  A  large  item  in  the  expense  ac- 
count of  many  huge  establishments  consists  in  an 
outlay  to  prevent  being  cheated  and  robbed,  or  to 
keep  in  order  immense  forces  of  employes.  Thus, 
in  the  case  of  some  vast  businesses,  we  hear  a  great 
deal  about  the  employment  of  "  spotters  "  and  pri- 
vate detectives. 

In  the  third  place,  the  author  would  freely  grant 
the  claim  of  his  correspondent  that  a  large  com- 
pany may  have  a  plant  of  maximum  efficiency ; 
but,  surely,  so  may  another  large  company. 

A  rich  company  does  not  have  to  borrow  capital, 
but  we  may  have  several  rich  companies  which  do 
not  have  to  borrow  capital.  Moreover,  a  resort  to 
credit,  if  it  is  prudent,  will  frequently  increase  gains 
in  spite  of  the  danger  of  crises.  Many  a  small  pro- 
ducer went  through  the  crisis  of  1893  in  perfect 
safety ;  many  a  large  company  became  bank- 
rupt. 

Large  capital,  it  is  urged,  can  corner  the  market ; 
this  is  a  point  to  be  proved.  Patents  are  admitted 
by  the  author  to  be  monopolies,  and  in  some  in- 
stances causes  of  other  monopolies.  It  depends 
upon  the  significance  of  the  patent  in  a  particular 
business.  Frequently  a  patent  owned  by  one  man- 
ufacturer may  be  offset  by  a  patent  owned  by  an- 
other. Really  unique  talent  in  business  is  denied ; 
there  may  be  rare  talent. 

In  so  far  as  that  portion  of  the  industrial  field  is 
concerned  which  lies  outside  of  our  admitted  field 
of  monopoly,  we  do  not  admit,  then,  that  the  five 

166 


THE    LIMITS    OF    MONOPOLY 

causes  enumerated  tend  to  produce  anything  more 
than  many  instances  of  business  on  a  large  scale. 

We  next  have  an  enumeration  in  the  letter  of 
the  advantages  of  monopoly  when  once  it  has  been 
secured.  We  might  reply  that  we  have  nothing  to 
do  with  these  unless  causes  first  operate  to  produce 
monopoly.  Some  of  the  advantages  of  monopoly 
have  to  be  admitted  as  peculiar,  and  are  not  found 
in  competitive  businesses  even  when  they  are  con- 
ducted on  a  vast  scale.  Commercial  travellers  may 
be  dispensed  with,  advertising  expenses  may  be  re- 
duced, presents  to  attract  customers  may  be  abol- 
ished, and  a  needless  duplication  of  plant  may  be 
avoided.  In  other  words,  we  have,  in  the  case  of 
monopolies,  an  abolition  of  the  wastes  of  the  com- 
petitive system.  But  likewise  we  have  an  abolition 
of  its  advantages.  When  once  monopoly  is  secure, 
it  is  likely  to  become  listless,  non-  inventive,  con- 
tent to  follow  in  the  old  ways,  indifferent  to  small 
economies;  in  short,  it  is  held  by  non-socialists 
that,  both  from  the  individual  point  of  view  and 
from  the  social  point  of  view,  the  gains  of  compe- 
tition outweigh  its  admitted  losses ;  and  that,  con- 
sequently, if  for  a  time  monopoly  could  be  secured 
in  the  manufacture  of  some  one  article,  or  class  of 
articles,  competition  would  inevitably  spring  up  and 
new  producers  would  hold  their  own  in  the  field  of 
production.* 

*  It  is  strange  that  some  conservative  economists  appar- 
ently fail  to  see  that  what  they  concede  to  the  advocates 

167 


MONOPOLIES    AND    TRUSTS 

We  next  turn  our  attention  to  lists  of  "  trusts," 
as  they  are  popularly  called,  and  examine  them 
critically  in  order  to  ascertain  whether  or  not  ex- 
isting concrete  conditions  are  in  harmony  with  our 
general  principles.  We  take  up  for  this  purpose 
two  of  the  most  recent  lists,  claimed  by  their  com- 
pilers to  be  as  nearly  complete  as  any  ever  pub- 
lished up  to  the  moment  when  they  appeared — 
namely,  the  one  published  in  the  Commercial  Year- 
Book  for  1899*  and  the  one  published  in  the  Review 
of  Reviews  for  June,  1899,  in  an  article  by  Mr.  Byron 
W.  Holt.  These  lists  at  first  glance  indicate  that 
we  have  a  veritable  "rush  to  industrial  monopoly" 
which  threatens  to  absorb  the  entire  field  of  indus- 
try. But  a  more  critical  examination  suggests 
doubts  about  the  extent  of  the  movement  as  a 
monopolistic  movement ;  and  that,  too,  in  spite  of 
the  fact  that  these  lists  are  not  so  crude  as  many 
others  which  have  been  offered  to  the  public.f 

of  the  superiority  of  monopolized  businesses  implies  an 
abandonment  of  the  fundamental  position  of  economics 
concerning  the  advantages  of  competition,  and  is  a  virtual 
surrender  to  the  theory  of  socialism. 

*  Issued  by  the  Journal  of  Commerce  and  Commercial 
Bulletin  of  New  York. 

t  As  an  illustration  of  absurdities  in  this  direction,  we 
may  cite  the  following  headings  of  an  article  of  some  length 
which  appeared  a  few  months  since  m  a  prominent  Chicago 
newspaper:  "Ice-Cream  Trust  Now— Four  Chicago 
Firms  Unite."  A  little  later  another  newspaper  startles 
us  with  these  head-lines:  "Trust  in  Prunes  and  Derby 
Hats!" 

168 


THE    LIMITS    OF    MONOPOLY 

First,  it  is  observed  on  careful  examination  that 
comparatively  few  of  these  combinations  enjoy 
what,  with  the  utmost  stretch  of  language,  can  be 
called  a  monopoly.  We  notice,  for  example,  "  The 
California  Wine-Makers'  Corporation  (allied  with  the 
California  Wine  Association)."  This  surely  has  no 
significance  except  as  part  of  a  wide-spread  drift  in 
the  direction  of  business  on  a  large  scale.  Com- 
petition has  no  more  been  abolished  by  this  "trust" 
than  it  has  by  the  "  United  Fruit  Company,"  men- 
tioned in  one  of  the  lists,  or  by  the  "  Chautauqua 
Grape-Growers'  Union,"  with  its  entirely  laudable 
and  socially  beneficial  purposes.  The  "American 
Bicycle  Company"  is  mentioned  as  in  the  process  of 
formation,  as  are  many  other  combinations;  but 
up  to  the  present  moment  there  is  competition  in 
the  manufacture  and  sale  of  bicycles  which  makes 
it  indeed  difficult  for  many  in  the  business  to 
maintain  bare  solvency,  and  the  purchasing  public 
enjoys  the  full  advantages  of  competition  except  in 
so  far  as  patents  set  comparatively  insignificant  bar- 
riers. Competent  judges  regard  the  possibility  of 
stopping  competition  in  this  business  as  most  re- 
mote.* 

Another  fact  noticeable  in  these  combinations  is 
the  number  of  them  working  in  the  same  field,  thus 

♦Since  the  above  was  written,  a  newspaper  item  has 
appeared  with  these  head-lines:  "Unite  Against  the 
Trust.  Three  Bicycle  Manufacturers  Combine,  it 
is  Said,  for  Protection." 

169 


MONOPOLIES    AND    TRUSTS 

giving  promise  of  competition.  We  notice,  for  ex- 
ample, this  item  in  our  lists :  "  American  Glucose 
Sugar  Refining  Company  (opposition  company)." 
We  observe  also  several  combinations  of  brewing 
companies,  but  as  beer  is  shipped  the  very  longest 
distances,  we  see  no  evidence  of  monopoly  in  the 
fact  that  the  breweries  in  a  single  city  may  be  con- 
solidated into  one  company.  Nor  can  we  believe 
that  the  "  Wholesale  Grocers  of  New  England  "  have 
a  combination  which  will  deprive  the  retail  grocers 
of  the  benefits  of  competition  in  the  purchase  of 
their  supplies. 

Secondly,  we  observe  that  the  lists  include  many 
businesses  which  fall  within  our  classification  of 
monopolies,  and  so  far  as  these  are  concerned  we 
have  admitted  all  that  is  claimed.  We  acknowl- 
edge that  they  lie  outside  of  the  competitive 
field. 

In  the  third  place,  it  is  significant  that  Mr.  Holt 
in  his  article  comes  back  again  and  again  to  special 
freight  rates  and  to  the  connection  between  the  rail- 
ways and  other  monopolies.  He  says :  "  The  vir- 
tual monopoly  which  Armour,  Swift,  Morris,  and 
Hammond  have  had  in  cattle  and  meats  comes  less 
from  any  formal  agreement  as  to  prices  which  they 
will  pay  for  cattle  or  at  which  they  will  sell  beef 
(though  they  fix  prices  in  both  directions)  than  from 
the  centralization  of  the  business,  the  great  capital 
invested,  and  the  advantages  which  such  immense 
dealers  and  shippers  have  in  obtaining  freight  rates 
and  in  the  distribution  of  meats  and  meat  products." 

170 


THE    LIMITS    OF    MONOPOLY 

Not  all  of  this  is  clear.  It  is  clear,  however,  that 
the  claim  is  put  forth,  or  simply  stated,  that  they 
have  an  advantage  in  freight  rates.  The  present 
writer  believes  that  quite  as  great  as  the  advantage 
in  freight  rates  is  that  which  they  have  in  terminal 
facilities,  the  use  of  stock-yards,  etc.  Further  on  we 
read  :  "  The  great  industrial  trusts  about  which  we 
are  so  greatly  concerned  just  now  began  to  appear 
in  1872,  when  the  anthracite  coal  combination  was 
formed  by  an  alliance  of  producers  and  carriers,  and 
when  the  interests  which  now  compose  the  Stand- 
ard Oil  Trust  first  began  to  work  in  harmony."  We 
have  already  accounted  for  the  anthracite  coal  trust 
and  the  Standard  Oil  Company.  We  know,  of 
course,  that  the  coal-carrying  railways  are  in  close 
combination  with  the  coal  corporations,  and  that 
some  of  the  railways  are  themselves  great  owners 
of  coal-fields.  That  is  the  case  with  the  Lehigh 
Valley,  Lackawanna,  and  the  Reading  roads. 

It  is  also  brought  out  in  Mr.  Holt's  article  that 
the  Standard  Oil  people  have  had  much  lower  rates 
than  other  refiners,  and  that  the  excess  of  the  rates 
charged  to  the  others  was  in  some  cases  turned  over 
to  the  Standard  Oil  people.  The  most  extreme  case 
is  one  the  story  of  which  has  been  repeated  so  often 
and  which  was  proved  in  court,  where  a  railway  com- 
pany of  Ohio  charged  Mr.  George  Rice,  of  Marietta, 
Ohio,  a  rate  of  thirty-five  cents,  and  the  Standard 
Oil  Company  a  rate  of  ten  cents,  for  carrying  oil  the 
same  distance  and  under  the  same  circumstances, 
and  then  of  this  thirty-five  cents  turned  over  twenty- 

171 


MONOPOLIES    AND    TRUSTS 

five  cents  to  the  Standard  Oil  people  as  rebate.*  Of 
course,  competition  is  simply  impossible  under  such 
circumstances. 

With  reference  to  pipe  lines,  Mr.  Holt  expresses 
himself  as  follows :  "  Unable  to  obtain  fair  treat- 
ment from  the  railroads,  the  independent  refiners  in 
1878-9,  with  a  capital  of  $5,000,000,  constructed 
the  Tidewater  Pipe  Line  Company.  Immediately 
the  railroads  reduced  their  rates  on  oil  from  $1.15 
per  barrel  to  80  cents,  to  30  cents,  to  10  cents,  and 
at  last,  as  the  General  Freight  Agent  of  one  of  the 
roads  stated,  to  a  rate  that  would  not  pay  for  wheel 
grease.  The  Tidewater  Pipe  Line  Company  survived 
the  many  attacks  until  1883,  when  it  was  gobbled 
up  by  the  trust."  We  see  here,  again,  that  it  is  not 
only  through  raising  rates,  but  also  through  lower- 
ing them,  that  competitors  are  ruined. 

It  is  very  natural  that,  with  these  advantages  in 
transportation,  attempts  should  be  made  to  curtail 
production,  and  thus  raise  prices.  It  is  chiefly  be- 
cause efforts  to  restrict  production  have  not  thus 
far  met  with  any  large  measure  of  success  for  a  long 
period  that  the  price  of  oil  has  been  so  low  as  it  has 
been.  The  only  way  to  sell  the  large  product  was 
to  put  down  the  price.  Hereafter,  efforts  to  curtail 
production  may  be  more  successful. 

In  the  meantime,  the  following  statement  from 
the  well-known  economist  and  Superintendent  of 

*  The  railway  was  the  Cleveland  and  Marietta.  The  case 
is  described  in  the  author's  Problems  of  To-day,  pp.  202-208. 

172 


THE    LIMITS    OF    MONOPOLY 

Schools  in  Chicago,  Dr.  E.  Benjamin  Andrews,  is 
instructive  :* 

"On  November  i,  1887,  the  Standard  Oil  authorities 
made  a  stipulation  with  the  Producers'  Protective  Asso- 
ciation of  the  oil-fields  by  which  five  million  barrels  of 
oil  belonging  to  the  Standard  were  set  apart  for  the 
benefit  of  the  association  upon  its  engaging  to  curtail 
the  production  of  crude  oil  at  least  17,500  barrels  a  day. 
The  paper  was  actually  signed  by  the  Standard  Oil 
Company  of  New  York,  but  the  Producers  understood, 
and  so  testified,  that  they  had  made  it  with  the  trust. 
If  at  the  end  of  the  year  the  production  proved  to  have 
been  lessened  by  the  aforesaid  amount,  the  Producers 
were  to  get  all  that  this  oil  sold  for  above  sixty-two  cents 
a  barrel ;  storage,  fire  -  losses,  and  insurance  being  first 
subtracted.  To  make  good  its  part  of  the  writing,  the 
Producers'  Association  entered  into  a  covenant  with  the 
Well  -  Drillers'  Union,  agreeing  to  pay  them  the  profits 
over  sixty  -  two  cents  a  barrel  on  one  million  barrels  of 
oil  and  part  profits  on  another  million,  in  return  for 
their  promise  to  desist  from  drilling  and  cleaning  wells 
throughout  the  oil  -  fields.  .  .  .  The  Drillers  called  this 
'earning'  the  oil.  After  the  date  of  this  agreement  the 
average  reduction  was  25,000  barrels  a  day.  Perhaps 
to  the  extent  of  7000  barrels  it  was  due  to  natural 
shrinkage,  but  the  rest  was  in  consequence  of  the  shut- 
down." 

There  is  also  something  in  Mr.  Holt's  article 
about  the  combination  on  the  part  of  the  paper 
producers  : 

*  Mr.  Holt's  article,  loc.  cit. 
173 


MONOPOLIES    AND    TRUSTS 

"  Immediately  after  the  organization  of  the  trust  it 
raised  the  price  of  paper  wherever  it  was  possible.  In 
three  cases  it  raised  its  price  $10  a  ton,  and  has  aver- 
aged an  increase  of  $5  a  ton  on  its  daily  output  of  1420 
tons,  equalling  an  increased  tax  of  $2,130,000  per  annum 
upon  the  newspapers  of  the  country,  which  now  pay  a 
total  exceeding  $20,000,000  per  annum  for  their  paper 
supply.  The  newspaper  men  admitted,  however — what 
the  trust  claimed — that  it  has  a  monopoly  of  the  water- 
powers  and  wood -tracts  so  situated  as  to  be  available 
for  the  cheap  production  of  paper.  Domestic  compe- 
tition, at  least  for  the  present,  is  therefore  out  of  the 
question.  Thus,  while  the  mills  might  be  duplicated  for 
$15,000,000,  the  water-powers  and  forest-tracts  cannot 
be  duplicated  at  any  price." 

We  see  here  that  the  source  of  the  monopoly  is 
in  wood-tracts  and  water-powers  which  are  limited. 
This  case  affords  another  confirmation  of  the  theory 
advanced  by  the  author. 

We  have,  then,  explained  the  existence  of  some 
monopolies  within  the  competitive  field  as  due  to 
the  causes  mentioned,  and  especially  to  private  fa- 
voritism. A  critical  examination  of  the  lists  of  trusts 
fails  to  reveal  a  single  monopoly  which  cannot  be 
explained  on  the  grounds  already  advanced.  With- 
out entering  the  realm  of  prediction  in  the  field  of 
industrial  society — an  incursion  which  has  proved 
disastrous  to  so  many — we  may  simply  say  that  no 
one  has  yet  adduced  an  instance  of  an  important 
monopoly  resting  upon  mere  mass  of  capital  or  upon 
mere  combination  without  external  aid. 

174 


THE    LIMITS    OF    MONOPOLY 

Furthermore,  we  find  no  difficulty  in  raising  enor- 
mous amounts  of  capital  for  competition,  even  if  it 
is  necessary  to  wait  a  long  time  for  returns.  It  is 
stated,  for  example,  that  on  a  single  work  an  Ameri- 
can publishing  house  was  willing  to  spend  one  mill- 
ion dollars  before  returns  were  received,  and  infor- 
mation from  a  reliable  source  would  lead  the  author 
to  regard  this  as  a  conservative  estimate.  Nor  do 
we  find  business  men  hesitating  to  enter  any  field 
where  they  have  what  is  called  "  a  fighting  chance." 
We  have  admitted  that  the  oil  business  is  now  a 
monopoly.  We,  nevertheless,  find  a  few  competi- 
tors struggling  on,  and  we  find  actual  or  would-be 
competitive  refiners  demanding  only  equal  trans- 
portation facilities,  and  promising  active  competi- 
tion, if  these  can  be  secured.  It  must  be  remem- 
bered, however,  that  equal  transportation  facilities 
are  not  necessarily  obtained  when  equal  rates  are 
given.  What  has  already  been  said  should  be  suffi- 
cient on  this  point.  The  writer,  however,  distinctly 
remembers  a  conversation  with  competitive  refiners 
in  which  the  endless  difficulties  encountered  by  them 
in  the  matter  of  transportation  facilities  were  dis- 
passionately recited.  Much  juggling  can  be  effected 
with  freight  classification,  moving  things  from  one 
class  to  another  in  such  a  way  as  to  surprise  and 
injure  those  who  are  marked  out  for  ruin.*    It  was 

*  Complaint  has  been  made  in  Pennsylvania  that  the  in- 
dependent refiners  who  wished  to  ship  refined  oil  in  tank- 
cars,  receiving  thereby  rates  much  lower  than  those  given 
for  shipments  in  barrels,  could  not  secure  the  tank-cars,  and 

175 


MONOPOLIES    AND    TRUSTS 

shown  how,  chiefly  through  obstacles  imposed  by 
railways,  it  had  been  necessary  to  abandon  field 
after  field  in  which  business  had  formerly  been  car- 
ried on. 

It  is  necessary  to  add  a  few  further  suggestions 
concerning  the  relation  between  monopoly  and 
mass  of  capital.  If  mass  of  capital  alone  can  pro- 
duce monopoly,  there  ought  to  be  some  discover- 
able ratio  between  mass  of  capital  and  monopoly 
forces.  If,  however,  we  take  businesses  in  general, 
we  cannot  find  even  the  slightest  approximation  to 
any  ratio  between  mass  of  capital  and  forces  mak- 
ing for  monopoly.  We  find  a  small  water  company 
with  a  capital  of  $50,000  secure  in  the  enjoyment  of 
a  monopoly  in  a  village  of  3000  inhabitants ;  and, 
on  the  other  hand,  we  find  great  publishing  houses 
with  capital  running  into  the  millions  competing 
vigorously  with  one  another,  and  indeed  with  a 
vigor  which  has  grown  as  the  amount  of  capital 

were  thus  forced  to  use  the  more  expensive  method  of 
shipment.  By  an  order  of  1892,  the  Inter-State  Commerce 
Commission  required  the  carrying  companies  to  furnish 
tank-cars  to  shippers  impartially,  or  pay  a  penalty  for  fail- 
ure. The  independent  refiners  subsequently  brought  against 
the  offending  carriers  a  claim  for  damages  suffered.  A  de- 
cision of  the  Commission,  printed  in  the  twelfth  (last)  annual 
report,  p.  191,  sustains  the  claim  of  the  refiners.  Up  to 
September,  1888,  there  was  no  difference  in  freight  rates 
per  barrel  as  between  shipment  in  barrels  and  shipment  in 
tank-cars.  Since  that  time  the  tank  rate  has  remained  con- 
stant, whereas  the  barrel  rate  has  steadily  increased  until  it 
now  exceeds  the  tank  rate  by  about  30  per  cent. 

176 


THE    LIMITS    OF    MONOPOLY 

has  increased.  We  find  mercantile  and  manufact- 
uring establishments,  with  capital  in  the  case  of 
each  establishment  amounting  to  several  millions, 
competing  with  one  another;  while,  on  the  other 
hand,  we  observe  that  a  street-car  company,  with  a 
capital  of  $100,000,  has  a  complete  monopoly  in  its 
field.  It  may  be  urged  that  we  should  take  each 
kind  of  business  by  itself.  But,  so  far  as  any  in- 
formation now  available  is  concerned,  we  shall  not 
in  that  case  reach  a  different  result.  If  we  take  the 
lists  of  trusts  published  by  the  Review  of  Reviews 
and  the  Commercial  Year-Book — to  both  of  which 
reference  has  already  been  made — and  go  through 
them  one  by  one,  arranging  the  "  trusts  "  in  classes 
according  to  the  nature  of  the  business,  we  shall 
still  fail  to  discover  any  approximation  whatever 
towards  a  proportion  between  mass  of  capital  and 
the  extent  to  which  monopoly  obtains,  or  to  the 
progress  made  in  the  direction  of  monopoly. 

It  has  just  been  said  that  so  far  as  our  knowledge 
now  extends  we  cannot  discover  a  connection  be- 
tween mass  of  capital  and  monopoly  force,  whereas 
we  do  discover  a  relation  between  monopoly  force 
and  the  other  conditions  which  have  been  mention- 
ed. We  must  avoid  dogmatism.  Our  knowledge 
of  concrete  conditions  is  imperfect.  It  is  conceiv- 
able that  in  some  kinds  of  business  the  mass  of 
capital  required  to  secure  even  minimum  living 
efficiency  may  be  so  vast  that  only  a  very  few  com- 
binations— say,  for  example,  six — capable  of  supply- 
ing this  mass  of  capital,  can  be  effected.  If  such  is 
m  177 


MONOPOLIES    AND    TRUSTS 

the  case  anywhere,  we  undoubtedly  have  there  con- 
ditions favorable  for  the  establishment  of  monopoly. 
We  may,  however,  justly  claim  that  nothing  of  the 
kind  has  been  shown  up  to  the  present ;  and  here, 
again,  it  does  not  seem  unfair  to  place  the  burden 
of  proof  upon  those  who  come  forward  with  eco- 
nomic doctrines  contrary  to  opinions  accepted  for 
generations,  and  contrary  to  what  has  been  hereto- 
fore regarded  as  the  experience  of  modern  industrial 
society.  It  seems  not  unreasonable  to  concede  that 
the  very  necessity  of  a  large  mass  of  capital  as  a  req- 
uisite of  minimum  living  efficiency  is  helpful  in 
the  establishment  of  monopoly  when  it  meets  with 
other  conditions  favorable  to  monopoly;  yet,  when 
we  observe  how  readily  capital  can  be  raised  by  the 
millions  for  promising  enterprises,  we  can  hardly 
escape  the  conclusion  that,  so  far  as  our  present 
knowledge  is  concerned,  we  are  not  warranted  in 
attaching  much  weight  to  mere  mass  of  capital  even 
as  a  helpful  condition. 

We  may,  then,  conclude  that  thus  far  our  analy- 
sis of  existing  industrial  conditions  gives  us  no  rea- 
son to  abandon  the  conviction  that  competition  is 
a  permanent  social  force.  The  causes  of  competi- 
tion are  founjl  in  human  nature  and  in  the  laws  of 
the  external  physical  universe,  under  the  operation 
of  which  men  must  toil  for  their  daily  bread.  Pro- 
fessor Giddings  gives  a  philosophical  statement  of 
this  truth  in  the  following  language :  "  That  com- 
petition in  some  form  is  a  permanent  economic  proc- 
ess is  an  implication  of  the  conservation  of  energy. 

178 


THE    LIMITS    OF    MONOPOLY 

Given  an  aggregate  of  units  of  unequal  energy, 
their  unequal  activity  is  an  inevitable  consequence. 
With  the  complexity  of  social  environment  that 
every  quarter  of  the  earth  everywhere  presents,  and 
the  limitless  variations  of  heredity,  a  society  com- 
posed of  individuals  of  equal  energy  is  an  impossi- 
bility. Therefore,  when  market  competition  seems 
to  have  been  suppressed,  we  should  inquire  what  has 
become  of  the  forces  by  which  it  was  generated. 
We  should  inquire,  further,  to  what  degree  market 
competition  actually  is  suppressed  or  converted  into 
other  forms,  and  within  what  limits  combinations 
can  hold  together  and  act  effectively.  The  combi- 
nation equilibrium  may  be  at  best  an  unstable 
one."* 

We  sum  up  the  matter,  then,  in  this  way :  So  far 
as  we  now  see,  we  have  a  large  field  belonging  to 
monopoly ;  but  outside  of  this  field  we  have  an- 
other in  which,  under  right  conditions,  competition 
is  a  permanent  social  force.  Furthermore,  we  place 
the  burden  of  proof  upon  those  who  claim  that  com- 
petition in  industry  is  self -annihilating  and  invari- 
ably makes  way  for  monopoly. 

*  The  Modern  Distributive  Process,  p.  22. 
179 


CHAPTER  V 

THE    CONCENTRATION    OF    PRODUCTION    AND 
TRUSTS 

We  have  endeavored  to  show  that  production  on 
a  large  scale  does  not  signify  the  abolition  of  com- 
petition, and  does  not  as  its  necessary  outcome  im- 
ply monopoly.  Our  treatment,  however,  would  not 
be  complete  without  an  additional  discussion  of 
large-scale  production.  To  what  extent  does  it  as 
a  matter  of  fact  prevail  ?  What  does  it  carry  with 
it  ?    What  are  its  limitations  ?* 

There  can  be  no  doubt  that  there  has  been 
considerable  concentration  of  production  in  cer- 
tain branches  of  industry.  So  far  as  the  writer  is 
aware,  this  has  not  even  been  called  in  question. 
It  is  brought  about  by  competition  acting  upon 
and  through  the  improved  machinery  and  im- 
proved processes  which  have  resulted  from  the  in- 
ventions and  discoveries  of  the  past  one  hundred 

*  The  author  would  have  it  clearly  understood  that  he 
does  not  profess  in  this  chapter  to  discuss  large-scale  pro- 
duction in  all  its  aspects,  but  desires  simply  to  bring  out 
some  of  its  more  general  features  which  have  a  direct  bear- 
ing on  the  subject  of  the  present  volume. 

1 80 


CONCENTRATION    OF    PRODUCTION 

and  fifty  years.*  Manufactures  especially  have 
grown  in  the  magnitude  of  the  single  business- 
unit.  Their  tendency  is  to  increase  up  to  a  point 
where  maximum  efficiency  is  reached.  And  unless 
the  size  of  the  business-unit  increases  up  to  the 
point  where  capital  and  labor  are  so  efficient  as  to 
secure,  for  the  one,  replacement,  together  with  an 
outlook  for  at  least  the  lowest  returns  on  capital 
which  at  the  time  will  be  accepted,  and,  for  the 
other,  subsistence  according  to  an  accepted  stand- 
ard of  life,  production  must  be  suspended.  This 
point  we  may  call  the  point  of  minimum  living 
efficiency.  The  point  of  maximum  and  the  point 
of  minimum  efficiency  vary  with  eveiy  kind  of 
business  and  vary  also  from  time  to  time.  It  is 
significant  that  the  general  tendency  during  the 
past  two  or  three  generations  has  been  to  increase 
the  size  of  the  business-unit  both  of  minimum  and 
of  maximum  efficiency.  The  writer  is  familiar 
with  the  history  of  a  watch  factory  which  was 
finally  obliged  to  suspend  operations.  This  was 
some  time  since,  but,  if  the  writer's  memory  serves 
him  correctly,  it  was  then  said  by  those  con- 
nected with  it  that  to  secure  a  sufficiently  cheap 
production  to  market  their  watches,  they  must 
do  business  on  a  scale  large  enough  to  occu- 
py something  like  three  hundred  employes.     The 

*  This  subject  is  ably  discussed  by  Mr.  John  A.  Hobson 
in  his  Evolution  of  Capitalism,  especially  in  chapter  iv.,  en- 
titled "The  Structure  of  Modern  Industry." 

181 


MONOPOLIES    AND    TRUSTS 

precise  number  is  not  of  significance.  It  is  of 
significance  that  this  establishment,  like  many- 
others,  perished  because  the  business  could  not 
be  conducted  on  a  scale  of  minimum  living  effi- 
ciency. 

Another  illustration  within  the  writer's  knowledge 
may  prove  helpful,  as  it  is  one  which  can  be  paral- 
leled by  every  reader  with  even  a  moderately  wide 
acquaintance.  In  one  of  our  large  cities  a  man 
began  business  about  seventy  years  ago.  One  of 
the  principal  products  of  the  business  was  bells,  and 
it  is  said  that  at  the  beginning  the  proprietor  him- 
self gathered  up  the  old  metal  and  carried  it  on  a 
wheelbarrow  to  his  foundry.  The  business  began 
in  the  smallest  possible  way,  but  as  years  went 
on  it  increased  to  large  proportions,  and  the 
proprietor  died  a  wealthy  man.  The  amount  of 
capital  with  which  the  business  was  begun  was 
so  insignificant  that  a  prudent  mechanic  could, 
within  a  short  time,  easily  gather  it  together. 
Probably  half  a  million  dollars  would  to-day  be 
a  small  sum  with  which  to  start  a  similar  man- 
ufacturing establishment  with  a  fair  prospect  of 
success. 

The  data  which  would  enable  us  to  tell  the  pre- 
cise degree  of  present  concentration  of  production 
have  not  as  yet  been  gathered  together,  and  still 
less  are  we  able  to  measure  accurately  the  progress 
which  has  been  made  in  this  direction.  We  have, 
however,  a  considerable  amount  of  statistical  infor- 
mation, and  it  is  sufficiently  full  and  accurate  to 

182 


CONCENTRATION  OF  PRODUCTION 

indicate  a  pronounced  movement  in  many  indus- 
tries.* 

The  general  movement  in  manufactures  from  1870 
to  1890  is  indicated  by  the  following  table,  taken 
from  the  Census  Report : 

/—Per  establishment.— \ 
Year.    Establishments.    Employe's.  Product.  Employes.      Product 

1870  252,148  2,053,996  $3,385,860,354  8.15  $13,428 
1880  253,502  2,700,732  5,349,191,458  10.66  21,101 
1890     322,638      4,476,884     9,056,764,996     13.88        28,071! 

The  census  figures  for  the  four  branches  of  the 
textile  industry — namely,  cotton  manufacture,  wool 
manufacture,  silk  manufacture,  and  dyeing  and  fin- 
ishing— are  as  follows : 

Combined  Textiles 


r- Per  establishment.-v 

Year. 

Establishments. 

Employe's. 

Product. 

Employes. 

Product. 

1850 

3.025 

146,897 

$128,769,971 

48.5 

$42,568 

i860 

3P27 

194,082 

214,740,614 

64.I 

70,942 

1870 

4.790 

274,943 

520,386,764 

574 

108,640 

1880 

4.OI8 

384.251 

532,673,488 

95.1 

132,572 

1890 

4,114 

511,897 

721,749,262 

I24.4 

175.435 

Mr.  Willoughby  offers  the  following  remarks  in 
explanation  of  the  table,  and  also  of  the  tendency 

*  The  best  concise  presentation  of  some  of  the  leading 
facts  in  regard  to  this  movement  in  the  United  States  is 
probably  that  given  by  Mr.  W.  F.  Willoughby,  in  the  Yale 
Review  for  May,  1898,  under  the  title  "The  Concentration 
of  Industry  in  the  United  States." 

t  Cited  by  Mr.  Willoughby,  ibid.,  p.  73. 

\  Cited  by  Mr.  Willoughby,  ibid.,  p.  75. 
183 


MONOPOLIES    AND    TRUSTS 

towards  localization  or  geographical  centralization 
of  industry : 

"  Combining  the  four  branches  of  the  textile  trade,  it 
is  seen  that  while  the  number  of  establishments  in- 
creased during  the  forty  years  considered  but  36  per 
cent.,  the  number  of  employe's  increased  248  per  cent, 
and  the  value  of  the  product  465  per  cent.  The  average 
number  of  employe's  per  establishment  has  thus  steadily 
risen  from  48.5  in  1850  to  64.1  in  i860,  57.4  in  1870, 
95.1  in  1880,  and  124.4  in  1890.  In  the  case  of  all  of 
the  industries,  it  is  important  to  notice  that  the  move- 
ment towards  concentration  has  gone  on  more  rapidly  in 
the  later  years. 

"The  tendency  towards  localization,  or  for  similar  es- 
tablishments to  group  themselves  in  the  same  places, 
has  been  scarcely  less  strong,  and  has  resulted  in  mak- 
ing four  cities  in  different  States  the  chief  localities  in 
which  each  industry  is  carried  on — Philadelphia,  Pa.,  in 
wool  manufacture;  Fall  River,  Mass.,  in  cotton  manu- 
facture ;  Paterson,  N.  J.,  for  silk ;  and  Cohoes,  N.  Y.,  in 
the  hosiery  and  knit-goods  manufacture.  The  enormous 
growth  in  the  wool-manufacturing  trade  during  the  last 
twenty  years  has  been  entirely  confined  to  eight  States 
in  the  East,  while  in  the  remaining  States  there  has  been 
an  actual  loss  of  45  per  cent.  Philadelphia  alone,  in 
1890,  produced  21.82  per  cent,  of  the  entire  woollens 
output  of  the  country  during  that  year."  * 

The  iron  business  is  one  in  which  the  movement 
has  been  especially  rapid,  and  in  which  it  has  gone 

*  Cited  by  Mr.  Willoughby,  ibid.,  p.  76. 


CONCENTRATION  OF  PRODUCTION 

far.  The  late  Hon.  Joseph  D.  Weeks,  editor  of  The 
American  Manufacturer  and  Iron  World,  probably 
one  of  the  best  authorities  on  this  subject,  wrote  a 
letter  to  the  author  under  date  of  January  8,  1894, 
from  which  the  following  is  a  quotation : 

"I  have  yours  of  the  4th,  regarding  the  tendency  to 
concentration  of  production  in  the  iron  business.  There 
is  no  question  at  all  as  to  this  tendency.  I  have  been 
collecting  statistics  of  the  iron  business  now  since  1870, 
and  I  have  observed  this  tendency  and  written  upon  it 
again  and  again.  When  I  first  began  gathering  statistics 
of  blast  furnaces  in  1872  there  were  quite  a  number  of 
charcoal  furnaces  active  in  Pennsylvania.  I  do  not 
recall  the  number,  but  I  should  think  eighteen  or  twenty; 
you  can  count  the  number  left  now  on  the  fingers  of 
one  hand.  Not  many  years  ago  there  were  fifteen  or 
twenty  charcoal  furnaces  up  the  Alleghany  River,  near 
Pittsburgh.  There  is  not  one  to-day,  nor  has  there  been 
one  for  years.  It  is  not  many  years  since  the  greater 
proportion  of  the  pig-iron  produced  in  the  United  States 
was  made  with  anthracite  coal  as  a  fuel  in  the  eastern 
part  of  Pennsylvania  and  up  the  Hudson  ;  to-day  much 
the  larger  percentage  is  coke-smelted  iron.  Up  to  1859 
there  was  not  an  iron  furnace  in  Pittsburgh,  the  first  fur- 
nace being  built  in  that  year;  to-day  Pittsburgh  produces 
as  much  pig-iron  as  the  entire  South  produces  from 
Southern  ores.  I  am  speaking  now  from  my  own  ob- 
servation and  knowledge. 

"  I  do  not  know  as  the  statistics  showing  these  move- 
ments of  the  iron  business  have  been  collected  and  pub- 
lished, but  the  data  are  available,  and  with  a  little  work 

185 


MONOPOLIES    AND    TRUSTS 

they  could  all  be  shown.  Statistics  are  available  cer- 
tainly as  far  back  as  1855  or  1856,  and  since  1870  there 
are  yearly  reports  showing  production  by  districts." 

After  the  death  of  Mr.  Weeks,  The  American 
Manufacturer  and  Iron  World,  under  date  of  De- 
cember 10,  1897,  published  a  long  article  giving 
statistics  showing  the  movement  towards  concen- 
tration in  the  blast-furnace  industry.  The  most 
salient  points  brought  out  by  the  tables  are  pre- 
sented in  the  following  extract  from  an  editorial 
which  appeared  in  the  same  issue  of  that  periodical : 

"  A  truly  remarkable  showing  is  made.  By  reference 
to  the  tables  on  page  838,  it  will  be  seen  that  in  Janu- 
ary, 1890,  there  were  345  furnaces  in  blast  with  a  total 
weekly  capacity  of  175,002  tons  of  pig-iron,  or  an  aver- 
age weekly  capacity  per  furnace  of  507  tons.  On  No- 
vember 1,  1897,  the  number  of  furnaces  in  blast  was 
only  185,  while  the  total  weekly  capacity  was  219,638 
tons,  equivalent  to  1187  tons  per  furnace.  Thus  in 
1897,  with  the  number  of  furnaces  less  by  46  per  cent, 
than  in  January,  1890,  there  is  an  increase  of  25  per 
cent,  in  the  total  capacity,  and  of  more  than  130  per 
cent,  in  the  average  capacity  per  furnace.  Another  in- 
teresting feature  shown  by  this  table  is  that  while  the 
capacity  of  each  charcoal  furnace,  and  also  of  each  an- 
thracite-and-coke  furnace,  has  increased,  there  has  been 
a  notable  decrease  both  in  the  number  of  furnaces  and 
of  the  total  production.  That  is  to  say,  the  number  of 
charcoal  furnaces  has  decreased  from  66  to  20,  the  total 
capacity  from  12,693  tons  to  4863  tons  (nearly  two- 
thirds),  while  the  weekly  capacity  of  each  furnace  in 

1 86 


CONCENTRATION  OF  PRODUCTION 

blast  increased  from  192  tons  to  243  tons.  In  the  an- 
thracite -  and  -  coke  furnaces  the  number  has  decreased 
from  in  to  27,  the  total  capacity  from  41,964  to  18,992 
tons,  while  the  capacity  per  furnace  has  nearly  doubled. 
Among  the  bituminous  furnaces  there  has  been  a  de- 
crease of  about  20  per  cent,  in  number,  an  increase  of 
more  than  50  per  cent,  in  the  total  capacity,  and  the 
average  capacity  per  furnace  has  nearly  doubled.  These 
statistics  show  very  clearly  how  iron-making  has  fol- 
lowed the  general  tendency,  and  these  figures  may  also 
be  taken  as  one  of  the  reasons  why  the  prices  of  pig-iron 
have  fallen.  With  greater  capacity  comes  lessened  cost, 
and  less  cost  is  followed  by  lower  prices." 

There  are  evidences  that  concentration  in  the  iron 
business  has  increased  still  further  since  1897,  while 
the  new  developments  following  the  opening-up  of 
the  Mesaba  Range  in  Minnesota  and  the  so-called 
Rockefeller-Carnegie  combination*  promise  a  fur- 
ther remarkable  concentration  in  the  iron-and-steel 
business,  but  not  by  any  means  the  necessary  sup- 
pression of  competition  ;  for  there  is  nothing  even 
pointing  in  the  direction  of  the  abolition  of  compe- 
tition which  cannot  be  explained  by  causes  already 
advanced.  In  other  words,  competition  still  persists, 

*  See  M.  de  Rousiers*  Les  Industries  Monopolisms  aux 
Etats-  Unis,  chap.  v.  The  author  relies  upon  M.  de  Rousiers 
for  his  facts  concerning  the  Rockefeller-Carnegie  combina- 
tion. A  recent  newspaper  item  alleging  that  Mr.  Rockefeller 
is  "squeezing  "  the  Carnegie  interests  in  freight  rates  would 
indicate  a  less  close  alliance  than  one  would  infer  from  M. 
de  Rousiers'  statement. 

187 


MONOPOLIES    AND    TRUSTS 

especially  international  competition,  which  would 
be  stimulated  by  a  reform  of  the  protective  tariff; 
and  we  have  promise  of  still  further  competition 
by  new  establishments  for  the  working  of  iron  and 
steel  on  a  vast  scale,  whereas  the  greatest  menace  to 
competition  comes  from  the  superior  transportation 
facilities  on  water  and  land  enjoyed  by  a  power- 
ful combination.  Furthermore,  it  must  be  remem- 
bered by  the  reader  that  a  sufficient  concentration 
of  decidedly  superior  mineral  treasures  has  already 
been  admitted  as  a  possible  cause  of  monopoly,  pro- 
vided these  mineral  treasures  are  privately  owned. 

The  purpose  of  the  present  book  is  not  to  give  a 
full  concrete  presentation  of  industrial  concentra- 
tion, for,  as  already  intimated,  the  time  is  not  yet 
ripe  for  such  a  presentation.  The  present  work 
deals  rather  with  general  principles,  and  it  is  hoped 
that  it  will  be  helpful  to  those  who  may  hereafter 
give  us  the  presentation  of  concrete  phenomena. 
The  facts  concerning  the  iron  business  are  adduced 
simply  by  way  of  illustration. 

Accurate  statistics  of  the  brewing  industry  in 
Germany  exist,  and  they  show  the  same  movement 
in  the  concentration  of  industry,  which  is  as  wide- 
spread as  modern  industrial  civilization.  The  num- 
ber of  breweries  decreased  from  1400  in  1872  to 
1050  in  1885,  an<3  yet,  accompanying  this  decrease 
in  the  number  of  business-units,  there  was  a  large 
increase  in  production.  The  beet -sugar  industry 
in  the  same  country  shows  a  largely  increased  pro- 
duction accompanying  increased  concentration.    In 

188 


CONCENTRATION  OF  PRODUCTION 

1836  the  capacity  per  factory  was  n£  tons,  and  in 
1884-5  ^  was  2^oo  tons. 

The  life-insurance  business  in  the  United  States 
affords  another  illustration  of  concentration  of  in- 
dustry. The  World  Almanac  gives  statistics  of  the 
"old-line"  life-insurance  companies  reporting  to  the 
New  York  Insurance  Department  for  twenty-five 
years.  In  1873  the  number  was  fifty-six  and  the 
total  income  was  $1 18,396,502  ;  in  1897  the  number 
was  thirty-five  with  a  total  income  of  $301,268,179. 

The  flour-milling  industry  in  the  United  States 
exhibits  a  similar  movement.  In  fact,  this  business 
can,  as  a  rule,  with  difficulty  be  carried  on  except 
on  a  large  scale.  The  writer  had  a  conversation 
a  few  years  ago  with  an  acquaintance  who  owned 
a  flour  mill  in  a  rural  district.  It  had  been  a  mill 
of  some  importance,  and  the  proprietor  was  then 
revolving  in  his  mind  the  problem  whether  it  would 
be  better  to  provide  the  mill  with  modern  ma- 
chinery and  attempt  to  secure  sufficient  wheat  for 
milling  on  a  large  scale  and  a  market  for  the  flour, 
or  to  retire  from  the  business  altogether.  This  is  a 
typical  case,  for  thousands  have  been  confronted 
with  the  same  problem.  The  time  to  argue  about 
this  has  gone  by,  as  the  movement  is  a  clear  one. 
It  does  not  mean  any  necessary  tendency  towards 
monopoly,  but  it  does  mean  that  in  many  quarters 
of  the  industrial  field  it  is  not  possible  to  do  busi- 
ness on  so  small  a  scale  as  formerly. 

Very  significant  in  this  connection  is  the  present 
crisis  in  the  Social  Democratic  party  of  Germany. 

189 


MONOPOLIES    AND    TRUSTS 

Present-day  German  socialism  was  founded  upon 
the  theories  of  Karl  Marx,  who,  in  his  work  Capital, 
maintains  that  in  every  branch  of  industry  there  are 
forces  at  work  which,  operating  under  the  iron  law 
of  nature,  will  produce  a  complete  monopoly,  so 
that  ultimately  it  will  be  necessary  only  to  replace 
private  monopoly  with  public  monopoly  in  order  to 
usher  in  socialism.  This  hypothesis  is  accompanied 
by  others,  making  an  apparently  solid  framework 
of  doctrine.  One  hypothesis  among  these  others 
is  the  increasing  misery  of  the  masses.  Now  it  is 
precisely  at  the  present  time  that  one  of  the  lead- 
ers of  the  German  Social  Democrats,  Herr  Eduard 
Bernstein,  takes  the  position  that  socialism  is  not 
coming  as  the  result  of  universal  monopoly  and 
increasing  misery,  but  that,  on  the  contrary,  it  will 
be  the  outcome  of  generally  improved  conditions. 
The  following  is  a  quotation  from  a  recent  work  by 
Herr  Bernstein : 

"  Notwithstanding  continual  changes  in  industrial 
groups  and  in  their  internal  arrangements,  the  picture 
which  presents  itself  to  us  to-day  does  not  indicate  that 
large  manufacturing  establishments  continually  devour 
business-units  of  small  and  moderate  dimensions,  but 
this  picture  simply  shows  large  business  establishments 
growing  up  by  the  side  of  smaller  ones.  It  is  only  those 
establishments  so  small  as  to  be  called  '  dwarf  establish- 
ments '  iZwergbdriebe)  which  are  suffering  an  absolute 
and  relative  decline.  So  far  as  the  business -units  of 
small  and  moderate  size  are  concerned  {Klein-  und  Mit- 
tel-betriebe),  they  are  increasing.     This  is  shown  for  Ger- 

190 


CONCENTRATION  OF  PRODUCTION 

many  by  the  following  statistics  of  employes  in  estab- 
lishments of  these  three  classes  : 


Small  establishments 

1882. 

1895- 

Increase, 
per  cent. 

(i  to  5  persons) 

2,457.950 

3,056,318 

243 

Moderate-sized  establishments 

(6  to  10  persons) 

500,079 

833.409 

66.6 

Large  establishments 

(10  to  50  persons) 

891,623 

1,620,848 

81.8 

"  The  population,  however,  increased  at  the  same  time 
only  to  the  extent  of  13.5  per  cent." 

After  further  observations,  Herr  Bernstein  uses 
the  following  words,  which  under  the  circumstances 
may  be  called  remarkable  : 

"  If  modern  society  is  to  break  to  pieces  by  reason  of 
the  disappearance  of  the  middle  classes  between  the  two 
extremes  of  the  social  pyramid,  if  this  breaking  to  pieces 
depends  upon  the  absorption  of  these  middle  classes  by 
the  extremes  above  and  below,  then  this  break-up  is  no 
nearer  its  realization  to-day  in  England,  Germany,  and 
France  than  it  was  in  any  earlier  period  than  the  nine- 
teenth century."* 

In  commerce  we  notice  the  development  of  the 
mammoth  department -store  in  all  modern  cities, 
and  we  are  pained  by  the  distress  of  those  who  suf- 

*  Cited  in  an  interesting  article  entitled  "  Bernsteins 
Kritik  des  Sozialismus,"  in  the  Wochenblatt  der  Frank- 
furter Zeitung,  April  21,  1899.  See,  for  the  original,  Bern- 
stein's Voraussetzungen  des  Sozialismus  und  die  Aufgaben 
der  Sozialdemocratie,  pp.  59-66.  * 

191 


MONOPOLIES    AND    TRUSTS 

fer  under  the  pressure  of  competition.  But  notice, 
it  is  the  pressure  of  competition,  not  the  pressure 
of  monopoly  that  produces  the  distress.  Notwith- 
standing this  development,  we  observe,  alongside  of 
these  mammoth  establishments,  many  small  retail 
stores,  and  we  can  still  see  retail  stores  of  one  kind 
and  another  starting  in  the  humblest  way  and  pros- 
pering on  account  of  the  diligence  and  skill  with 
which  they  are  managed  by  their  proprietors. 

Agriculture  least  of  all  exhibits  any  general  move- 
ment in  the  direction  of  concentration.  We  see  a 
few  large  farms  growing  up  and  prospering,  but  at 
the  same  time  many  great  estates  are  divided  up, 
and  it  is  not  clear  that  in  our  own  or  other  countries 
we  have  had  during  the  last  two  generations  any 
concentration  of  production.  A  personal  word  in 
this  connection  is  sufficiently  instructive  to  warrant 
its  insertion.  The  writer's  course  on  the  Distribu- 
tion of  Wealth  has  been  given  in  the  University 
of  Wisconsin  for  seven  years,  and  in  his  classes  he 
has  had  many  bright  minds,  some  of  whom  are  al- 
ready beginning  to  be  known  by  their  writings,  and 
give  promise  of  eminence.  Again  and  again  the 
subject  of  concentration  of  production  in  agricult- 
ure has  been  assigned  to  members  of  the  classes, 
and  a  great  amount  of  time  has  been  expended  in  in- 
vestigation of  available  data.  Any  one  at  all  familiar 
with  the  author's  methods  will  readily  accept  the 
statement  that  not  the  slightest  pressure  has  ever 
been  brought  to  bear  upon  a  student  to  influence 
him  towards  a  foreseen  conclusion.    Now  the  point 

192 


CONCENTRATION  OF  PRODUCTION 

is  this :  No  one  yet  has  been  able  to  show  any  con- 
centration in  agricultural  production,  so  far  as  area 
is  concerned,  although  one  investigator  thinks  that 
there  is  some  indication  of  concentration  so  far  as 
the  value  of  the  farms  cultivated  is  concerned.  The 
results  are,  perhaps,  in  no  case  as  yet  ready  for  pub- 
lication, but  undoubtedly  some  of  those  who  have 
been  engaged  in  these  investigations  will  sooner  or 
later  publish  the  facts  so  far  as  they  shall  then  be 
ascertained.* 

*  The  figures  in  chapter  iv.,  in  regard  to  wheat  production 
in  California,  which  the  author's  correspondent  quotes  (see 
p.  155),  are  altogether  misleading,  as  anyone  widely  familiar 
with  agriculture  knows.  The  author  is  inclined  to  doubt 
their  accuracy,  even  for  California,  but  even  if  accurate  for 
that  State,  it  is  owing  to  exceptional  conditions,  among 
which  the  climate  is  an  important  one.  The  following  quo- 
tation from  Dr.  Charles  B.  Spahr's  article,  entitled  "  The 
Northern  Farm,"  which  appeared  in  the  Outlook  for  No- 
vember 4,  1899,  is  especially  instructive  in  this  connection  : 

"  I  went  from  Litchfield  to  the  Red  River  Valley  to  investigate 
'bonanza  farms.'  Ever  since  David  A.  Wells,  in  his  Recent  Eco- 
nomic Changes,  published  about  ten  years  ago,  urged  that  the  prices 
of  farm  products  were  being  reduced  by  the  cheaper  methods  of 
production  employed  on  the  great  ranches,  the  impression  has  been 
circulated  far  and  wide  that  in  agriculture  as  in  manufacturing  the 
'  big  fish  are  eating  up  the  little  ones,'  and  that  the  independent 
small  farm  is  soon  to  be  a  thing  of  the  past.  From  the  time  I  en- 
tered Minnesota  till  the  time  I  left  North  Dakota  —  the  supposed 
fields  of  gold  for  the  great  wheat  ranches — I  heard  not  a  single  fact 
that  even  seemed  to  support  the  prevalent  Eastern  theory.  In 
southern  Minnesota  everybody  I  asked  agreed  that  the  large  farms 
had  been  the  least  successful,  and  Superintendent  Gregg  assured  me 
that  all  over  the  State  the  big  farms  were  gradually  being  broken  up 
N  193 


MONOPOLIES    AND    TRUSTS 

The  size  of  the  business- unit  of  maximum  ef- 
ficiency must  depend  upon  the  capacity  of  the  head 
of  the  business-unit,  upon  the  nature  of  the  particu- 
lar business,  and  upon  the  progress  which,  at  the 
given  moment,  has  been  made  in  the  methods  of 
organization.  Whenever  a  business  outgrows  the 
capacity  of  one  man  to  maintain  unity,  the  danger 
point  is  reached.  Men  differ  greatly  in  the  general- 
ship required  for  the  management  of  a  vast  business, 
and  unity  is  maintained  in  some  businesses  far  more 
easily  than  in  others.  It  is  quite  possible  that  with 
a  division  of  the  railways  of  the  United  States  into 
suitable  geographical  areas,  each  with  a  large  meas- 
ure of  autonomy,  a  unified  management  could  in  a 
general  way  be  exercised  over  them  all.  The  size  of 
the  business  concern  in  manufacturing  over  which 
unity  can  be  exercised  is,  so  far  as  can  now  be  seen, 
much  smaller;  and  still  smaller  is  the  mercantile 
establishment  over  which  unified  control  can  be  ex- 


into  smaller  ones.  On  the  railroad-car  north,  my  first  travelling 
companion  proved  to  be  the  agent  of  one  of  the  very  large  land 
companies  in  the  western  part  of  the  State,  and  when  I  asked  him 
about  the  profitableness  of  farming  on  a  large  scale,  he  said  that  his 
company  had  now  adopted  the  policy  of  selling  its  land  to  small 
farmers.  He  did  not,  indeed,  depict  the  '  bonanza '  farm  as  hope- 
less, but  he  recognized  that  it  was  less  profitable  than  the  small 
farm  managed  and  tilled  by  its  owner.  When  I  reached  the  Red 
River  Valley,  where  the  large  farms  are  still  the  rule,  this  judgment 
was  universally  confirmed.  The  great  estates  of  that  region  are 
doomed  to  disintegration.  The  great  wheat  ranch  cannot  compete 
with  the  small  diversified  farm.  In  agriculture  the  big  fish  are  fur- 
nishing food  for  the  little  ones." 

194 


CONCENTRATION  OF  PRODUCTION 

ercised.  Vastly  smaller  in  agriculture  is  the  size 
of  the  business-unit  over  which  unified  control  can 
be  exercised.  With  the  change  from  extensive  to 
intensive  culture  there  is  apparently  a  general  ten- 
dency to  divide  up  large  estates,  although  it  is  per- 
haps true  that  after  this  change  has  once  been  made 
there  is  again  a  very  moderate  movement  in  the  di- 
rection of  larger  farms.* 

When  large-scale  production  without  any  special 
favors  conquers  a  position  for  itself  in  any  por- 
tion of  the  industrial  field,  it  is  because  it  carries 
with  it  advantages  for  society.  These  have  been 
frequently  described,  and  it  is  probably  not  too 
much  to  say  that  they  are  at  present  familiar  not 
merely  to  students  of  economics,  but  to  well  -  in- 
formed persons  generally.  A  more  extended  divis- 
ion of  labor  in  these  cases  means  a  more  effective 
organization  of  industrial  forces  whereby  an  econ- 
omy is  effected  both  in  human  labor  power  and  in 
the  expenditure  of  capital.  Large-scale  production 
means  a  use  of  machinery  which  multiplies  the 
work  of  human  labor  power,  ten,  one  hundred,  and 
even  one  thousand -fold.  Large-scale  production 
also  means  particularly  the  utilization  of  former 
waste,  and  in  this  direction  some  of  its  most  signal 
triumphs  have  been  achieved.  There  are  many 
stories   afloat   which   illustrate   the    utilization   of 

*  This  movement  is  suggested  by  Professor  Amos  G.  War- 
ner in  two  valuable  articles  on  "  California  Land  Problems," 
which  appeared  in  the  Record  and  Guide,  of  New  York,  in 
the  issues  for  March  7  and  14,  1896. 

195 


MONOPOLIES    AND    TRUSTS 

waste  in  the  great  packing -houses  in  Chicago,  of 
which  this  one  is  typical :  "  Mr.  Armour  says  that 
the  only  part  of  the  hog  which  he  cannot  save  and 
utilize  is  its  dying  breath."  The  field  for  general- 
ship which  large-scale  production  affords  has  already 
been  mentioned.  It  utilizes  and  develops  abilities, 
perhaps  comparable  to  those  of  a  great  warrior, 
while  details  are  left  for  men  of  a  subordinate  order 
of  talent. 

We  need  not  dwell  longer  upon  this  familiar 
ground.  Large-scale  production  adds  to  human 
comfort  and  well-being  through  increased  produc- 
tion of  material  wealth.  Large-scale  production 
increases  the  margin  between  the  human  race  and 
bare  subsistence,  or  even  starvation.  Further  prog- 
ress is  needed  in  the  production  of, material  wealth. 
The  surplus  over  subsistence  may  seem  to  be  vast 
when  we  contemplate  the  mode  of  life  of  the  well- 
to-do  and  the  wealthy,  and  the  surplus  is,  indeed, 
vast.  Nevertheless,  any  considerable  addition  to 
the  average  income  of  the  people  could  be  effected 
only  by  a  vastly  increased  production  of  material 
wealth.  If  there  are  seventy  millions  of  human  be- 
ings in  the  United  States  at  the  present  time,  an 
addition  of  five  cents  a  day  to  the  income  of  each 
would  mean  an  annual  increase  in  the  total  na- 
tional income  of  $1,277,500,000;  and  of  course  it 
must  always  be  remembered  that  the  conditions  in 
the  United  States  are  exceptionally  favorable ;  that 
elsewhere  hundreds  of  millions  of  human  beings 
lack  what  we  regard  as  the  barest  necessaries  of  life 

196 


CONCENTRATION  OF  PRODUCTION 

in  the  way  of  food,  clothing,  and  shelter.  The 
point  which  must  be  emphasized,  then,  is  that  one 
of  the  conditions  of  satisfactory  human  progress  is 
increased  efficiency  in  production.  Resistance  to 
large-scale  production,  when  this  kind  of  production 
comes  about  not  through  external  favoritism,  but 
as  a  result  of  inherent  advantages,  is  like  resistance 
to  machinery,  to  which  it  has  so  often  been,  com- 
pared. There  are,  indeed,  serious  evils  connected 
with  that  evolution  of  industry  which  has  brought 
us  the  growth  of  the  business-unit  of  vast  propor- 
tions. But  these  evils  must  be  cured,  in  so  far  as  cure 
is  possible — and  a  great  deal  is  possible  in  the  way 
of  cure — while  still  keeping  the  increased  efficiency 
of  large-scale  production  with  all  its  benefits. 

But  it  is  not  true  that  the  entire  movement  is 
altogether  in  the  direction  of  large-scale  production, 
even  in  manufactures,  where,  as  Professor  Marshall 
points  out,  there  are  special  advantages  on  account 
of  the  fact  that  manufacturers  have  the  power  to 
choose  freely  the  locality  in  which  they  will  do 
their  work,  whereby  they  are  enabled  to  select  that 
locality  in  which  the  greatest  advantages  are  con- 
centrated, manufacture  presenting  in  this  respect  a 
contrast  with  agriculture  and  also  with  extractive 
industries  in  which  the  locality  for  occupation  is 
largely  dictated  by  fertility  and  the  presence  of  the 
natural  treasures.  The  difference  is  simply  that  a 
large  production  in  manufactures  can  be  conducted 
on  an  incomparably  smaller  area  than  in  agriculture 
or  the  extractive  industries. 

197 


MONOPOLIES    AND    TRUSTS 

But,  as  already  stated,  not  even  in  manufactures 
does  everything  move  in  the  direction  of  large-scale 
production.  The  industry  of  repairing  tools  and 
machines,  for  example,  is  carried  on  by  prosperous 
mechanics  on  the  smallest  scale.  We  find  their 
little  shops  in  considerable  numbers  in  every  com- 
munity of  any  size. 

There  is  also  opportunity  for  small-scale  manu- 
facturing in  all  cases  in  which  things  are  made  to 
suit  individual  tastes.  The  most  familiar  illustra- 
tion is  furnished  by  what  is  called  custom-made 
clothing.  But  this  catering  to  the  individual  tastes 
of  the  consumer  is  not  by  any  means  all,  nor  is  it 
even  what  is  most  significant  in  recent  develop- 
ments. There  is  along  many  lines  an  increasing 
demand  for  things  which  give  expression  to  indi- 
viduality in  the  worker.  Printing  is  now  carried  on 
in  more  that  one  great  city  almost  as  a  fine  art  and 
on  a  small  scale  with  a  minimum  amount  of  machin- 
ery. Bookbinding  also  is  undergoing  a  develop- 
ment which  places  it  almost  if  not  quite  within  the 
realm  of  the  fine  arts.  There  are  indications  that 
development  of  the  handicrafts  along  this  line  is 
not  to  be  attributed  to  mere  passing  whim  and  ca- 
price, or  what  we  frequently  designate  as  faddism. 
There  is  a  desire  for  individualization  in  production, 
and  there  is  some  ground  to  suppose  that  there  will 
be  in  the  future  a  considerable  class  of  persons  de- 
manding not  so  many  things,  but  fewer  and  better 
things,  and  especially  things  which  give  opportunity 
for  an  expression  of  the  individuality  of  the  worker. 

198 


CONCENTRATION  OF  PRODUCTION 

This  movement  is  well  described  by  Mr.  John  A. 
Hobson  in  his  excellent  work,  John  Ruskin,  Social 
Reformer.  It  appears  from  this  work  that  there 
has  been  formed  in  England  under  the  influence  of 
Mr.  Ruskin's  teaching  a  society  called  "  The  Home 
Arts  and  Industries  Association."  One  of  its  aims 
is  stated  as  follows :  "  To  revive  the  old  handicrafts 
which  once  flourished  in  England  and  which  have 
now  almost  died  out,  and  to  encourage  the  labor- 
ing classes  to  take  a  pride  in  making  their  homes 
beautiful  by  their  own  work."  After  describing 
the  considerable  progress  of  the  work  of  this  so- 
ciety, Mr.  Hobson  says: 

"  It  is,  in  a  word,  a  practical  informal  attempt  of  a 
civilized  society  to  mark  out  for  itself  the  reasonable 
limits  of  machine-production,  and  to  insist  that  'cheap- 
ness '  shall  not  dominate  the  whole  industrial  world  to 
the  detriment  of  the  pleasure  and  benefit  arising  from 
good  work  to  the  worker  and  the  consumer.  Such  a 
movement  neither  hopes  nor  seeks  to  restore  mediaeval- 
ism  in  industry,  nor  does  it  profess  hostility  to  machinery, 
but  it  insists  that  machines  shall  be  confined  to  the 
heavy,  dull,  monotonous,  and  therefore  inhuman,  proc- 
esses of  work,  while  for  the  skill  of  human  hand  and 
eye  shall  be  preserved  all  work  which  is  pleasant  and 
educative  in  its  doing,  and  the  skill  and  character  of 
which  contribute  pleasure  and  profit  to  its  use."* 

The  author  does  not  desire  to  emphasize  unduly 
the  importance  of  this  movement,  but  it  at  least  in- 

*Sce  Hobson'sy^Aw  Ruskin,  Social  Reformer,  pp.  322-3. 
199 


MONOPOLIES    AND    TRUSTS 

dicates  that  not  everything  is  going  in  the  direction 
of  large-scale  machine-production. 

Nor  does  all  progress  favor  even  machine- pro- 
duction on  a  large  scale.  We  have  already  given 
statistics  showing  the  persistence  of  small-scale 
manufacturing-production  in  Germany,  and  these 
statistics  could  be  paralleled  in  every  modern  coun- 
try. Inventions  and  discoveries  have,  on  the  whole, 
favored  the  development  of  production  on  a  large 
scale.  Now,  however,  there  are  schools  and  various 
other  agencies  which  have  for  their  express  purpose 
a  wide  diffusion  of  technical  knowledge ;  and  these 
agencies  render  the  knowledge  available  to  the  one 
who  is  working  on  a  small  scale.  The  possibility 
of  securing  cheap  gas  as  a  fuel  and  electric  or  water 
power  at  low  rates  frequently  helps  the  one  who 
produces  on  a  small  scale  to  hold  his  own  against 
the  large  producer.  Recent  progress  has  made  it 
possible  to  have  gas  and  electric  power,  and  often 
water  power,  at  a  very  low  rate,  and  this  possibility 
is  realized  especially  in  the  case  of  public  ownership 
and  operation  of  those  utilities.  Too  frequently  in 
the  case  of  private  ownership  and  operation  this 
cheapened  production  is  used  for  increased  divi- 
dends and  stock-watering,  and  also  too  frequently 
in  the  case  of  private  undertakings  the  interests  of 
the  large  consumer  are  advanced  by  lower  rates 
than  those  accorded  to  the  small  consumer,  and 
that,  too,  to  a  needless  and  unwarranted  extent. 
It  is  noticeable,  however,  as  an  indication  of  prog- 
ress favorable  to  the  small  producer,  that  the  idea 

200 


CONCENTRATION  OF  PRODUCTION 

and  the  practice  of  public  ownership  are  rapidly- 
gaining  ground.  It  is  not  the  purpose  at  the  pres- 
ent time  to  enter  into  any  argument  concerning  the 
advantages  of  public  ownership  as  contrasted  with 
private  ownership,  but  simply  to  call  attention  to 
a  drift  favorable  to  production  on  a  small  scale  in 
many  parts  of  the  industrial  field. 

The  development  of  postal  facilities  is  favorable 
to  large  department-stores,  but  it  also  favors  many 
small  producers  who  are  able  to  send  their  products 
long  distances  for  low  rates.  Thus,  printing-work 
for  secret  societies  is  done  to  some  considerable 
extent  in  a  little  village  in  western  New  York,  and 
in  the  same  way  the  post-office  affords  opportuni- 
ties for  producers  in  a  rural  district  in  Virginia  to 
vaise  violets  for  the  Philadelphia  market.  These  in- 
stances are  simply  illustrative. 

Frequently  there  is  opportunity  for  the  individual 
producer  with  initiative  to  discover  some  improved 
way  of  satisfying  old  wants,  and  to  begin  produc- 
tion on  a  small  scale  with  prospect  of  success,  pro- 
vided he  is  alert  and  diligent  as  well  as  technically 
skilful.  We  have  seen  manufacturing  establish- 
ments rise  in  this  way  in  small  cities  in  the  North- 
west and  elsewhere  which  have  been  able  to  supply 
improved  underclothing,  while  other  producers  were 
continuing  to  move  in  old  ruts.  Underclothing  has 
come  to  be  made  more  generally  to  suit  individual 
needs,  and  has  also  been  improved  in  other  ways  as 
the  result  of  the  efforts  of  men  who  started  manu- 
facturing in  a  small  way. 

20 1 


MONOPOLIES    AND    TRUSTS 

Though  we  may  condemn  attempts  to  reverse  the 
manifest  order  of  evolution — to  turn  backward  to 
old  forms  —  we  may  yet  contemplate  with  satis- 
faction certain  indications  of  a  movement  which 
will  restore  some  of  the  advantages  of  old  forms 
while  maintaining  the  efficiency  brought  us  by  new 
methods. 

But  we  must  not  overlook  the  other  side  of  the 
picture.  If  the  industrial  evolution  which  we  have 
just  been  describing,  resulting  in  large-scale  pro- 
duction in  so  large  a  proportion  of  the  industrial 
field,  has  brought  us  benefits,  it  has  also  brought  us 
evils,  although  these  evils  have  not  always  been 
correctly  perceived,  and  features  of  the  movement 
which  are  really  beneficial  have  been  regarded  by 
some  as  evils.  Allegation  of  evils  is  in  many  cases 
due  to  a  faulty  political  economy.  If,  as  the  result 
of  concentration,  it  is  possible  to  dispense  with  the 
services  of  thirty -five  thousand  drummers,  as  is  so 
often  alleged  —  probably  an  exaggeration  —  it  is  a 
good  thing,  because  it  means  increased  efficiency 
and  a  larger  supply  of  human  brains  and  energy 
available  for  the  satisfaction  of  the  wants  of  the 
world.  Frequently  mention  is  made  of  the  vacant 
stores  in  cities,  as  if  this  were  an  evil ;  but  the 
real  problem  is  to  increase  available  land  supply 
in  large  crties,  and  if  department -stores  make  it 
possible  to  do  the  commercial  business  of  these 
cities  on  a  much  smaller  area,  more  ground  is 
left  for  dwellings  and  for  purposes  of  recreation, 
and  the  result  is  a  gain.     To  resist  this  movement 


CONCENTRATION    OF    PRODUCTION 

is  on  a  par  with  burning  down  houses  to  make 
work. 

Where,  then,  are  the  real  evils?  If  those  drum- 
mers who  lose  their  positions  do  not  find  something 
else  to  do  which  will  fully  employ  their  powers,  we 
have  an  evil.  Many  of  them  do  find  other  employ- 
ment, and  many  are  positively  helped  by  being 
jarred  out  of  the  ruts  into  which  they  have  fallen ; 
but  this  is  not  by  any  means  the  case  with  all  who 
lose  their  occupations  as  a  result  of  industrial  read- 
justments. It  is  here  as  it  has  been  in  the  case  of 
machinery.  One  of  the  errors  of  many  speakers 
at  the  Chicago  Conference  on  Trusts  was  an  over- 
hasty  generalization  concerning  the  universality  of 
the  beneficial  effects  of  machinery.  On  the  whole, 
machinery  is  a  benefit,  and  it  was  folly  to  attempt 
to  oppose  it.  Nevertheless,  machinery  did  displace 
a  great  many  workers,  and  not  all  of  them  succeeded 
in  finding  employment.  Many  mechanics  suffered, 
and  suffered  grievously.  Some  of  the  utterances 
heard  at  this  conference  were  in  marked  contrast 
with  the  scholarly  lectures  on  the  subject  of  Indus- 
trial Revolution,  given  the  past  summer  at  the  Uni- 
versity of  Wisconsin,  by  Dr.  William  Cunningham, 
of  Cambridge  University,  England.  In  these  lect- 
ures Dr.  Cunningham  showed  by  analysis  that  in 
some  cases  there  was  an  expansion  of  the  oppor- 
tunities for  work — for  example,  in  the  spinning  in- 
dustry—  of  such  a  kind  that  no  one  suffered  on 
account  of  machinery ;  whereas  in  very  many  other 
cases — for  example,  wool-combing — there  was  very 

203 


MONOPOLIES    AND    TRUSTS 

little  expansion  and  there  was  intense  suffering.* 
Particularly  those  in  middle  life  or  beyond,  who 
have  acquired  a  specialized  skill  which  is  rendered 
useless  by  improved  methods  of  production,  are  like- 
ly to  suffer  permanently.  It  is  of  no  use  to  talk  to 
them  about  what  happens  "  in  the  long  run,"  for 
their  life  is,  as  has  so  frequently  been  observed,  only 
a  short  run. 

Many  other  alleged  evils  are  either  not  evils  at 
all  or  are  of  less  importance  than  has  been  repre- 
sented. We  have,  for  instance,  the  independence 
of  the  small  producer,  of  which  much  has  been 
made.  President  Cleveland,  in  one  of  his  annual 
messages  to  Congress,  emphasized  the  loss  of  the 
benefits  of  the  sturdy  independence  of  the  man 
working  on  his  own  account,  as  the  chief  objection 
to  the  trust  movement.!     There  is  something  in 

*  Cf.  his  work,  The  Outlines  of  English  Industrial  History, 
chapter  ix.,  on  "  Labor  and  Capital." 

f  "Another  topic  in  which  our  people  rightfully  take  a 
deep  interest  may  be  here  briefly  considered.  I  refer  to  the 
existence  of  trusts  and  other  huge  aggregations  of  capital, 
the  object  of  which  is  to  secure  the  monopoly  of  some  par- 
ticular branch  of  trade,  industry,  or  commerce,  and  to  stifle 
wholesome  competition.  When  these  are  defended,  it  is 
usually  on  the  ground  that  though  they  increase  profits 
they  also  reduce  prices,  and  thus  may  benefit  the  public. 
It  must  be  remembered,  however,  that  a  reduction  of  prices 
to  the  people  is  not  one  of  the  real  objects  of  these  organ- 
izations, nor  is  their  tendency  necessarily  in  that  direction. 
If  it  occurs  in  a  particular  case  it  is  only  because  it  accords 
with  the  purposes  or  interests  of  those  managing  the  scheme. 

204 


CONCENTRATION    OF    PRODUCTION 

this,  but  it  can  well  be  exaggerated.  Take,  for  ex- 
ample, the  case  of  a  small  struggling  merchant  who 
lives  by  personal  solicitation.  Is  such  a  man  really- 
independent  ?  Does  he  openly  express  his  views  on 
religious  and  political  matters  ?  We  have  all  seen 
timidity,  or  even  servility,  and  not  independence 
in  cases  of  this  kind.  The  condition  of  the  small 
British  tradesman  in  this  matter  of  servility  to  cus- 
tomers is  well  sketched  by  George  Eliot  in  her  por- 
trayal of  English  life,  and  it  is  not  a  pleasant  pic- 

"  Such  occasional  results  fall  far  short  of  compensating  the 
palpable  evils  charged  to  the  account  of  trusts  and  monop- 
olies. Their  tendency  is  to  crush  out  individual  indepen- 
dence and  to  hinder  or  prevent  the  free  use  of  human  facul- 
ties and  the  full  development  of  human  character.  Through 
them  the  farmer,  the  artisan,  and  the  small  trader  is  in  dan- 
ger of  dislodgment  from  the  proud  position  of  being  his 
own  master,  watchful  of  all  that  touches  his  country's  pros- 
perity, in  which  he  has  an  individual  lot,  and  interested  in 
all  that  affects  the  advantages  of  business  of  which  he  is  a 
factor,  to  be  relegated  to  the  level  of  a  mere  appurtenance 
to  a  great  machine,  with  little  free  will,  with  no  duty  but 
that  of  passive  obedience,  and  with  little  hope  or  oppor- 
tunity of  rising  in  the  scale  of  responsible  and  helpful  citi- 
zenship. 

"  To  the  instinctive  belief  that  such  is  the  inevitable  trend 
of  trusts  and  monopolies  is  due  the  wide-spread  and  deep- 
seated  popular  aversion  in  which  they  are  held,  and  the 
not  unreasonable  insistence  that,  whatever  may  be  their 
incidental  economic  advantages,  their  general  effect  upon 
personal  character,  prospects,  and  usefulness  cannot  be  oth- 
erwise than  injurious." — Message  of  President  Cleveland, 
December  7,  1896. 

205 


MONOPOLIES    AND    TRUSTS 

ture.*  Many  an  employe  of  a  vast  corporation  or 
of  a  large  political  unit  has  a  far  greater  degree  of 
true  independence  as  well  as  a  better  opportunity 
for  the  development  of  his  faculties.  To  take  an 
extreme  case  :  Will  the  professor  in  a  great  uni- 
versity gain  in  independence  and  in  his  sphere  of 
action  if  he  resigns  his  position  to  start  a  private 
school?  Ordinarily  not.  There  are  undoubtedly 
some,  and  especially  those  not  performing  func- 
tions requiring  any  high  degree  of  skill  or  special 
talent,  who  are  placed  in  a  position  of  dependence, 
frequently  degrading,  in  the  service  of  vast  aggre- 
gations of  capital.     Here  we  have  an  evil. 

It  is  claimed  for  large-scale  production  that  it  se- 
cures steadiness  of  employment.  Mr.  Willoughby, 
in  his  article  on  "  The  Concentration  of  Production 
in  the  United  States,"  f  enlarges  on  this  point,  and 
asserts  that  the  wage-earners  have  in  consequence 
of  concentration  gained  decidedly  in  regularity  of 
employment.     It  is,  however,  difficult,  in  the  pres- 

*  Mr.  Harold  Frederic,  in  his  novel,  The  Market  Place, 
incidentally  gives  us  a  similar  picture.  A  rich  parvenu, 
named  Thorpe,  buys  an  estate  called  Pellesley  Court  and 
changes  its  name  to  High  Thorpe.  "  By  the  autumn  of  the 
following  year,  a  certain  small  proportion  of  the  people  in- 
habiting the  district  in  Hertfordshire  which  set  its  clocks 
by  the  dial  over  the  stable  tower  of  Pellesley  Court  had 
accustomed  themselves  to  give  the  place  its  new  name  of 
High  Thorpe.  These  were  for  the  most  part  the  folk  of 
peculiarly  facile  wits  and  ready  powers  of  adaptation,  like 
pushing  small  tradesmen,  and  the  upper  servants  in  country 
houses."  t  Yale  Review,  1898. 

206 


CONCENTRATION  OF  PRODUCTION 

ent  transitional  and  formative  stage  of  industry,  to 
speak  positively  concerning  the  connection  between 
the  growth  of  the  business-unit  and  steadiness  of 
production.  A  conclusion  cannot  be  drawn  from 
a  few  selected  establishments,  but  rather  we  must 
take  the  movement  as  a  whole.  When  we  do  so, 
we  recall  the  violent  fluctuations  in  production  and 
irregularity  of  employment  which  have  attended 
the  growth  in  the  size  of  the  business -unit.  It 
may  not  be  that  we  have  here  to  do  with  a  causal 
relation,  but,  at  any  rate,  the  two  have  existed  side 
by  side — namely,  a  growing  business-unit  and  ir- 
regularity of  employment. 

We  must,  however,  distinguish  between  busi- 
nesses simply  producing  on  a  large  scale  and  those 
in  which  there  is  an  attempt  to  secure  monopoly. 
If  we  consider  a  competitive  business  which  has 
without  special  favors  grown  to  large  proportions, 
we  shall  be  inclined  to  admit  that  a  greater  reg- 
ularity of  operation  may  be  anticipated  than  in 
the  case  of  many  small  businesses.  The  large  area 
of  its  operations  undoubtedly  tends  to  diminish 
the  chance  element,  in  accordance  with  well-known 
and  accepted  principles.  Local  adversity  in  one 
quarter  of  its  field  of  operation  may  be  offset  by 
unusual  prosperity  in  another  quarter  of  the  field. 
On  the  other  hand,  it  should  not  be  overlooked 
that  everywhere  we  may  find  small  businesses  en- 
gaged in  steady  production,  and  apparently  suffer- 
ing little  even  in  times  of  general  depression. 
There  is  probably  not  a  city  of  twenty  thousand 

207 


MONOPOLIES    AND    TRUSTS 

inhabitants  in  the  United  States  in  which  small 
businesses  with  remarkable  steadiness  of  produc- 
tion cannot  be  discovered. 

When  we  take  up  businesses  striving  for  mo- 
nopoly in  what,  according  to  the  theory  of  this 
work,  is  regarded  as  the  competitive  field,  we  can- 
not fail  to  observe  many  irregularities.  Perhaps 
these  irregularities  have  been  most  keenly  felt  by 
investors.  There  have  been  prepared  for  the  writer 
graphical  illustrations  of  the  fluctuations  of  sever- 
al so-called  trust  stocks  from  1890  to  1896.  These 
illustrations  include  the  American  Tobacco  Com- 
pany, the  American  Sugar  Refining  Company,  the 
Distilling  and  Cattle  Feeding  Company,  and  the 
National  Cordage  Company.  The  graphical  illus- 
trations suggest  the  zigzag  course  of  a  streak  of 
lightning  in  its  movement  across  the  heavens.  The 
course  of  the  stock  market  has  not,  to  be  sure,  been 
accompanied  with  equal  irregularities  in  employ- 
ment; yet  the  irregularity  in  employment  in  the 
case  of  the  manufacturing  concerns  which  have 
endeavored  to  secure  monopoly  has  been  great. 
Indeed,  one  of  the  principal  sources  of  popular  anx- 
iety at  the  present  time  comes  precisely  from  ir- 
regularity and  uncertainty  of  employment.  Many 
factories  have  been  closed,  and  the  workmen  have 
been  discharged.  Elsewhere  in  this  volume  it  is 
admitted  that  economy  in  labor  power  and  in  the 
use  of  capital  is,  on  the  whole,  a  good  thing ;  but 
we  cannot  for  that  reason  overlook  the  irregularities 
which  have  accompanied  recent  industrial  evolution. 

208 


CONCENTRATION    OF    PRODUCTION 

And  when  we  speak  of  these  irregularities,  we  must 
consider  not  merely  the  gigantic  establishments 
themselves,  but  their  influence  upon  steadiness  of 
production  and  employment  in  other  establishments. 
If  some  of  the  manufacturing  establishments 
which  have  been  fighting  to  secure  monopoly  should 
finally  succeed  in  passing  beyond  the  fighting  era, 
doubtless  very  different  results  will  appear.  A  mo- 
nopolized business  has  possibilities  of  systematic, 
planful  production,  which  it  must  be  admitted  do 
not  exist  in  the  same  degree  for  competitive  busi- 
nesses. In  other  words,  we  reach  here  one  of  the 
strongest  points  made  by  the  Socialists.  Where 
production  is  strictly  unified,  the  whole  field  can  be 
overlooked ;  demand  can  be  anticipated,  and  pro- 
duction regulated  accordingly.  We  come  back 
again,  then,  to  the  old  controversy  between  social- 
ism and  competition.  It  is  held  by  the  non-social- 
ist that  the  active  stimulus  of  competition  in  its 
field  more  than  counterbalances  admitted  disad- 
vantages of  competition.  Naturally  this  subject 
belongs  chiefly  to  that  part  of  the  general  treatise 
on  The  Distribution  of  Wealth  which  deals  with 
competition.  It  is  here  suggested,  on  the  one 
hand,  that  as  a  result  of  improved  statistical  knowl- 
edge, revealing  what  is  going  on  in  each  branch 
of  production,  some  of  the  evils  of  the  competitive 
order  may  be  greatly  mitigated.  On  the  other 
hand,  it  is  suggested  that  the  very  complaints  which 
we  now  hear  in  regard  to  competition  show  some 
of  the  advantages  to  be  secured  by  the  mainten- 
o  209 


MONOPOLIES    AND    TRUSTS 

ance  of  the  competitive  order,  if  it  is  granted  that 
this  is  possible.  Thus,  for  instance,  it  is  said  that  it 
is  extremely  difficult  to  "  make  money  "  in  a  com- 
petitive business.  This  is  true ;  and  the  fact  serves 
as  a  powerful  stimulus  to  activity.  The  struggle  of 
competition  is  undoubtedly  severe,  and  it  requires 
large  capacity  and  intense  activity  to  secure  great 
gains.  But  under  a  normal  competitive  order,  large 
capital  coupled  with  intense  activity  means  an  un- 
usual amount  of  social  service.  Is  not  this,  then,  as 
it  should  be  ?  Those  who  render  large  social  service 
have  large  reward.  And  through  competition  a 
diffusion  of  the  benefits  of  improvement  is  secured. 
This  is  a  claim  for  competition,  provided  that  com- 
petition can  be  maintained  and  competitive  business 
placed  upon  a  high  ethical  level,  in  which  case  it 
will  only  remain  for  every  one  to  equip  himself  in 
the  best  possible  manner  for  the  service  with  its 
appropriate  reward. 

On  the  whole,  it  can  hardly  be  claimed  that  the 
wage -earners  have,  with  the  growth  of  the  busi- 
ness-unit, lost  in  opportunities  for  development.* 
It  must  not  be  forgotten  that  with  the  increase  of 

*  Mr.  W.  F.  Willoughby  takes,  perhaps,  too  roseate  a  view 
of  the  effects  of  concentration  of  business  on  the  position 
of  the  workman;  and  yet  it  must  be  admitted  by  every  one 
that  what  he  says  is  for  the  most  part  true,  even  if  not  the 
whole  of  the  truth.    Among  other  things  he  says : 

"In  the  first  place,  the  material  conditions,  or  the  environment 
under  which  the  laborers  carry  on  their  work,  is  far  superior  in  the 
large  establishment.     The  large  establishment  means  large  mills, 

210 


CONCENTRATION  OF  PRODUCTION 

the  business -unit  comes  organization,  and  that  or- 
ganization also  has  its  social  and  educational  ad- 
vantages, as  well  as,  in  turn,  its  own  evils. 


large  plants.  In  the  place  of  small  buildings,  often  structures 
erected  for  other  purposes  and  ill  suited  for  the  work  carried  on  in 
them,  and  with  low  ceilings  and  insufficient  light,  in  which  the 
small  establishment  was  located,  one  now  sees  large,  specially  con- 
structed buildings,  with  high  ceilings,  an  abundance  of  light,  good 
drainage  and  water  supply.  Here  are  found  labor-saving  machines, 
improved  devices  for  guarding  against  accidents,  for  removing  dust 
or  other  substances  injurious  to  the  health  of  the  laborers.  In  the 
large  establishment  it  is  possible  for  the  employers,  or  for  the  men 
themselves,  to  maintain  various  institutions  for  the  latter's  comfort, 
such  as  baths,  libraries,  club-houses,  eating-  and  lodging-rooms  for 
the  unmarried  men.  To  secure  the  needed  room,  employers  are 
more  and  more  going  to  the  outskirts  of  the  cities,  or  even  to  the 
open  country,  to  locate  their  plants.  Instead  of  being  located  in 
narrow  streets  of  the  squalid  quarters  of  a  city,  establishments  of 
the  larger  concerns  are  now  situated  where  the  benefits  of  pure  air 
and  pure  water  can  be  obtained,  where  the  men  and  their  families 
can  live  in  detached  cottages  instead  of  crowded  tenements,  and 
where  they  can  more  readily  become  the  owners  of  their  own 
homes.  These  are  points  that  cannot  be  proven  by  the  marshal- 
ling of  figures.  It  needs  but  a  slight  acquaintance,  however,  with 
the  actual  conditions  under  which  industry  is  now  carried  on,  to 
perceive  that  the  growth  of  the  large  establishment  means  the  great 
improvement  of  the  conditions  under  which  the  workingmen  must 
perform  their  labor.  One  has  but  to  glance  at  the  conditions  per- 
taining in  the  garment-making  and  tobacco-manufacturing  trades  as 
now  practised  in  our  large  cities,  where,  under  the  regime  of  num- 
erous small  shops,  the  sweating  system  holds  full  sway,  and  con- 
trast them  with  those  of  the  mill  operatives,  who  have  made  the 
cloth,  to  realize  the  superiority  of  the  latter.  The  effort  to  abolish 
the  sweating  system  is  the  attempt  to  have  this  work  performed  in 
krge  mills  and  regularly  organized  and  equipped  workshops. 

"  It  is  now,  moreover,  pretty  generally  accepted  that  the  state 
211 


MONOPOLIES    AND    TRUSTS 

The  trust  movement,  so  called,  considered  apart 
from  the  movement  in  the  direction  of  wealth  con- 
centration on  the  one  hand,  and  the  movement 
towards  monopoly  on  the  other,  means  at  the 
present  time  nothing  else  than  this  general  ten- 
dency towards  increased  size  of  the  business- unit. 
Of  course  the  author  would  here  be  understood  as 
referring  to  a  genuine  industrial  evolution  and  not 
to  a  merely  speculative  movement  which  has  aimed 
to  take  advantage  of  a  favorable  condition  of  the 
stock  market.*  Formerly  the  trusts  were  businesses 

has  a  part  to  play  in  determining  the  conditions  under  which  in- 
dustry shall  be  carried  on.  Such  legislation  as  the  prohibition  of 
the  employment  of  children  of  tender  age,  the  requirement  that 
mill -owners  shall  provide  seats  for  female  employees,  separate 
toilet  facilities  for  the  two  sexes,  the  maintenance  of  hygienic  con- 
ditions, etc.,  have  contributed  greatly  to  improving  the  condition 
of  the  laboring  classes.  The  weak  point  in  this  legislation  has 
been  the  difficulty  with  which  it  is  enforced.  In  the  small  and 
widely  diffused  shops  such  enforcement  is  often  impossible.  The 
growth  of  the  large  establishment  simplifies  greatly  this  task  of  the 
state.  Concealment  or  evasion  is  here  difficult." — "The  Concentra- 
tion of  Industry  in  the  United  States,"  Yale  Review,  May,  1898. 

*  President  Arthur  T.  Hadley,  in  an  article  on  "  Trusts  "  in 
Scribner's  Magazine  for  November,  1899,  calls  attention  to 
still  another  phase  of  this  movement.  He  ascribes  it  in  part 
to  a  legitimate  desire  to  find  a  wider  market  for  the  secur- 
ities of  manufacturing  establishments  than  they,  as  a  rule, 
have  had  heretofore.  A  local  manufacturing  establishment, 
even  if  large  and  prosperous,  has  scarcely  more  than  a  local 
market  for  its  stocks  and  bonds ;  but  when  it  combines  on  a 
national  scale  with  other  establishments  engaged  in  the 
same  kind  of  business,  it  finds  a  national  or  even  a  world 

212 


CONCENTRATION  OF  PRODUCTION 

which  found  unity  through  trustees  into  whose 
hands  they  were  placed  for  management.  Trustee- 
ship was  simply  a  mode  whereby  combination  was 
effected.  When  legislators  who  failed  to  look  below 
the  surface  phenomena  outlawed  this  sort  of  trus- 
teeship, other  modes  of  union  were  formed,  espe- 
cially the  vast  corporation  which  absorbed  the 
smaller  corporations.  It  must  be  clearly  under- 
stood, then,  that  there  is  no  such  thing  as  a  trust 
problem  in  itself.  The  trust  problem,  as  it  is  called, 
means  the  wide-spread  tendency  to  do  business  on 
a  large  scale.  The  so-called  trusts  are  not  a  bad 
thing,  unless  business  on  a  large  scale  is  a  bad  thing. 
On  the  contrary,  when  they  come  about  as  the  re- 
sult of  a  free  development,  they  are  a  good  thing, 
and  it  is  a  bad  thing  to  attempt  to  break  them  up ; 
from  efforts  of  this  kind  no  good  has  yet  come  to 
the  American  people.  The  futility  of  attempts  to 
accomplish  anything  beneficial  by  efforts  of  this 
kind  is  well  illustrated  by  the  result  of  the  success- 
ful suit  brought  by  the  Attorney-General  of  Illinois 
against  the  Pullman  Company.  It  was  found  that 
this  company  had  undertaken  to  do  a  great  many 
things  which  the  act  of  incorporation  did  not  en- 
title it  to  do.  The  suit  of  the  Attorney-General  in 
the  interests  of  the  people  was,  as  just  stated,  suc- 
cessful; but  it  would  be  hard  to  find  the  human 

market  for  its  securities.  The  present  author  would  only 
add  that  this  wider  market  for  securities  should  follow  and 
not  precede  the  natural  evolution  of  industry. 

213 


MONOPOLIES    AND    TRUSTS 

being  who  has  received  any  benefit  from  this  suc- 
cessful suit,  unless  it  be  a  few  lawyers  who  have  re- 
ceived employment  in  the  process  of  readjustment. 
If  the  Pullman  Company  has  been  obliged  to  sell 
its  gas-works,  it  does  not  necessarily  mean  that  gas 
will  be  supplied  under  more  favorable  conditions. 
It  doubtless  means  that  the  small  gas-works  will  be 
absorbed  by  the  greater  gas-works,  so  that  the 
people  will  be  brought  face  to  face  with  another 
vast  aggregation  of  capital. 

We  have  spoken  of  the  "trust  movement  "as  a 
genuine  industrial  evolution,  and  such  it  has  been 
in  part ;  but,  in  part,  as  we  have  also  intimated,  it 
is  -a  purely  speculative  movement.  As  a  specula- 
tive movement  it  belongs  to  the  category  of  opera- 
tions which,  on  the  one  hand,  have  offered  a  sad 
exhibition  of  the  credulity  of  men,  and  on  the  other 
have  produced  more  wide-spread  disaster  than  all 
the  earthquakes  of  which  history  furnishes  a  record. 
We  place  the  speculative  movement  on  a  par  with 
the  Mississippi  schemes  of  John  Law — not  by  any 
means  altogether  unreasonable  in  every  particular 
— and  the  bubble  companies  of  the  eighteenth  cen- 
tury in  England,  culminating  in  the  South  Sea 
Bubble,  which  burst  in  1720.  The  success  of  the 
Standard  Oil  combination  and  a  few  others  has 
captivated  the  imaginations  of  men  ;  the  limitations 
of  monopoly  not  being  perceived,  there  has  been  a 
readiness  to  believe  that  every  combination  has  in 
it  a  potential  gold  mine,  and  a  speculative  temper 
on  the  stock  exchange  has  made  it  possible  for  pro- 

214 


CONCENTRATION  OF  PRODUCTION 

moters  to  exploit  the  general  public.  The  trust 
movement  is  not  likely  to  yield  such  a  large  wreck- 
age as  the  bubble  movement  of  the  eighteenth  cen- 
tury, because  it  has  received  checks  from  several 
sources ;  and  of  these  checks  one  of  the  more  po- 
tent has  been  the  action  of  the  bankers  in  a  closer 
scrutiny  of  trust  projects.  Yet  even  they  did  not 
move  vigorously  until  many  had  sown  the  wind  to 
reap  the  whirlwind ;  and  it  is  not  certain  that  even 
now  in  their  scrutiny  of  projects  they  are  perform- 
ing their  full  duty  to  the  public.  For  it  must  be 
remembered  that  their  position  as  advisers  of  in- 
vestors places  a  heavy  responsibility  upon  them.* 

*The  point  just  made  in  the  text  is  well  brought  out  in 
the  following  quotations  from  three  conservative  period- 
icals : 

"  The  advantages  of  combination,  which  have  rendered  it  one 
of  the  striking  tendencies  of  the  general  economic  situation,  have, 
of  course,  their  influence  in  producing  the  present  manifestations. 
But,  in  addition,  the  success  which  has  attended  so  many  of  the 
new  combinations  organized  and  brought  out  within  the  past  twelve 
months  has  rendered  manufacturers  in  other  lines  of  business  the 
more  prone  to  listen  to  suggestions  of  this  kind,  while  it  is  now 
comparatively  easy  to  enlist  the  support  of  large  financial  interests, 
and  even  of  conservative  bankers,  in  the  formation  of  the  syndicates 
whose  assistance  is  a  necessary  part  of  the  general  plan  of  such  op- 
erations. The  present  week  has  brought  further  additions  to  the 
combinations  incorporated  or  actually  brought  out  and  to  the  num- 
ber of  those  which  are  understood  to  be  still  in  the  stage  of  negotia- 
tion and  preparation,  and  which  embrace  a  great  variety  of  differ- 
ent industries." — "Industrial  Combinations,"  Bradstreefs,  Satur- 
day, February  18,  1899,  volume  27,  page  98. 

"  For  the  wild  commotion  on  the  stock  exchange  during  the  last 
215 


MONOPOLIES    AND    TRUSTS 

month  or  two,  the  blame  is  commonly  laid  at  the  door  of  the  so- 
called  '  industrial '  incorporations.  This  is  true  to  the  extent  that 
the  spirit  of  reckless  speculation  has,  perhaps,  concentrated  more  on 
this  class  of  stocks  than  on  others.  But  the  fact  is  that,  in  the  pe- 
culiar position  of  the  public  mind  at  the  opening  of  the  year,  it  was 
merely  a  question  of  finding  something  which  the  promoter  could 
foist  upon  the  public  at  inflated  values." — "  The  Wall  Street  Inci- 
dent," Nation,  Thursday,  April  13,  1899,  volume  68,  page  270. 

"We  have  spoken  of  the  accumulation  of  capital  as  one  potent 
factor  in  the  extension  of  these  industrial  combinations.  It  will  be 
very  evident  how  strikingly,  this  being  the  case,  the  organization  of 
such  enterprises  adapts  itself  to  the  existing  situation.  Every  one 
knows  the  peculiar  position  of  American  capital  at  the  present 
time.  Our  fortunate  trade  of  the  last  three  years,  and  our  equally 
fortunate  economies  as  a  people,  have  made  the  United  States,  for 
the  time,  richer  in  available  funds  than  at  any  previous  epoch  in  its 
history.  Simultaneously  it  has  been  discovered  that  the  field  of 
available  investment  has  not  widened  along  with  the  new  supplies 
of  capital.  ...  It  is  not,  then,  at  all  surprising  that  promoters  of 
industrial  combinations  should  be  hastening  to  place  their  shares  in 
the  open  market." — "  The  Industrial  Stocks,"  The  Commercial  and 
Financial  Chronicle,  Saturday,  January  7,  1899,  volume  68,  page  5. 

2l6 


CHAPTER  VI 

EVILS  AND   REMEDIES 

A  STATEMENT  of  the  problems  presented  by 
monopolies  and  trusts  suggests  the  evils  for  which 
remedies  are  sought.  What,  then,  are  the  problems 
with  which  we  are  dealing  ?  As  we  have  already 
seen,  there  is,  strictly  speaking,  no  trust  problem. 
But  when  people  talk  about  trusts,  they  have 
problems  in  mind  which  are  real  and  genuine. 
Analysis  reveals  that  we  have  here  to  do  with 
three  main  problems :  First,  a  monopoly  problem  ; 
secondly,  a  problem  of  industrial  concentration ; 
and  thirdly,  a  problem  of  wealth  concentration. 

The  evils  of  monopoly  have  for  the  most  part 
been  already  stated  or  implied  in  our  previous  dis- 
cussion. There  remains,  however,  something  to  be 
added,  and  we  can  continue  the  discussion  of  evils 
in  no  better  way  than  by  directing  attention  to 
the  statement  of  these  evils  by  the  courts.  A  lead- 
ing case  is  the  English  one  of  Darcy  vs.  Allein, 
of  1602.  The  evils  of  monopoly  were  stated  in 
these  words :  "  First.  '  The  price  of  the  same  com- 
modity will  be  raised,  for  he  who  has  the  sole  sell- 
ing of  any  commodity,  may  and   will   make  the 

217 


MONOPOLIES    AND    TRUSTS 

price  as  he  pleases.  .  .  .  The  second  incident  to  a 
monopoly  is  that  after  the  monopoly  is  granted 
the  commodity  is  not  so  good  and  merchantable 
as  it  was  before :  for  the  patentee,  having  the  sole 
trade,  regards  only  his  private  benefit,  and  not  the 
commonwealth.  Third.  It  tends  to  the  impover- 
ishment of  divers  artificers  and  others,  who,  be- 
fore, by  the  labor  of  their  hands  in  their  art  or 
trade,  have  maintained  themselves  and  their  fami- 
lies, who  now  will  of  necessity  be  constrained  to 
live  in  idleness  and  beggary.'  "•     This  exposition  of 

*  Quoted  by  Beach,  Monopolies  and  Industrial  Trusts, 
p.  ii,  where  it  is  spoken  of  as  the  case  of  Darcy  vs.  Allen, 
but  it  should  be  vs.  Allein.  The  outline  of  the  case  as 
taken  from  u  Coke's  Reports,  84  f.  et  seqq.,  is  sufficiently 
interesting  and  important  to  warrant  its  insertion. 

"  The  Case  of  Monopolies. 
Trin.  44  Eliz. 

A  grant  by  the  Crown  of  the  sole  making  of  cards  within  the  realm, 
is  void. 

"A  dispensation  or  licence  to  have  the  sole  importation  and  mer- 
chandizing of  cards,  without  any  limitation  or  stint,  is  against 
law,  notwithstanding  the  3  E.  4,  which  imposes  a  forfeiture  upon 
their  importation.     S.  C.  [(Moor.  671.     Noy  173.)] 
"  Edward   Darcy,  Esquire,  a  Groom  of  the  Privy  Chamber  to 
Queen  Elizabeth,  brought  an  action  on  the  case  against  T.  Allein, 
Haberdasher,  of  London,  and  declared,  that  Queen  Elizabeth,  13 
Junii,  anno  30  Eliz.  intending  that  her  subjects  being  able  men  to 
exercise  husbandry,  should  apply  themselves  thereunto,  and   that 
they  should  not  employ  themselves  in  making  playing  cards,  which 
had  not  been  any  ancient  manual  occupation  within  this  realm,  and 
that  by  making  such  a  multitude  of  cards,  card-playing  was  become 
more  frequent  and  especially  among  servants  and  apprentices,  and 
poor  artificers  ;  and  to  the  end  her  subjects  might  apply  themselves 

218 


EVILS    AND    REMEDIES 

evils  has  been  very  frequently  endorsed  by  Ameri- 
can courts,  and  one  of  these  courts  adds  this  com- 
ment upon  the  third  ground  mentioned:  "The 
third  objection,  though   frequently  overlooked,  is 

to  more  lawful  and  necessary  trades ;  by  her  letters  patent  under 
the  great  seal  of  the  same  date  granted  to  Ralph  Bowes,  Esq.  full 
power,  licence  and  authority,  by  himself,  his  servants,  factors,  and 
deputies,  to  provide  and  buy  in  any  parts  beyond  the  sea,  all  such 
playing  cards  as  he  thought  good,  and  to  import  them  into  this 
realm,  and  to  sell  and  utter  them  within  the  same,  and  that  he,  his 
servants,  factors,  and  deputies,  should  have  and  enjoy  the  whole 
trade,  traffic,  and  merchandize,  of  all  playing  cards  ;  and  by  the 
same  letters  patent  further  granted,  that  the  said  Ralph  Bowes,  his 
servants,  factors,  and  deputies,  and  none  other  should  have  the 
making  of  playing  cards  within  the  realm,  to  have  and  to  hold  for 
twelve  years ;  and  by  the  same  letters  patent,  the  Queen  charged 
and  commanded,  that  no  person  or  persons  besides  the  said  Ralph 
Bowes,  &c.  should  bring  any  cards  within  the  realm  during  those 
twelve  years ;  nor  should  buy,  sell,  or  offer  to  be  sold  within  the 
said  realm,  within  the  said  term,  any  playing  cards,  nor  should 
make,  or  cause  to  be  made  any  playing  cards  within  the  said  realm, 
upon  pain  of  the  Queen's  highest  displeasure,  and  of  such  fine  and 
punishment  as  offenders  in  the  case  of  voluntary  contempt  de- 
serve. And  afterwards  the  said  Queen,  n  Aug.  anno.  40  Eliz.  by 
her  letters  patent  reciting  the  former  grants  made  to  Ralph  Bowes, 
granted  the  plaintiff,  his  executors,  and  administrators,  and  their 
deputies,  &c.  the  same  privileges,  authorities,  and  other  the  said 
premises,  for  twenty-one  years  after  the  end  of  the  former  term, 
rendering  to  the  Queen  100  marks  per  annum ;  and  further  granted 
to  him  a  seal  to  mark  the  cards.  And  further  declared,  that  after 
the  end  of  said  term  of  twelve  years,  j.  30  Junii,  an.  42  Eliz.  the 
plaintiff  caused  to  be  made  400  grosses  of  cards  for  the  necessary 
uses  of  the  subjects,  to  be  sold  within  this  realm,  and  had  expended 
in  making  them  5000/. ,  and  that  the  defendant  knowing  of  the  said 
grant  and  prohibition  in  the  plaintiffs  letters  patent,  and  other  the 
premises,  15  Martii,  anno  44  Eliz.  without  the  Queen's  licence, 
or  the  plaintiffs,  &c.  at  Westminster  caused  to  be  made  80  grosses 

219 


MONOPOLIES    AND    TRUSTS 

none  the  less  important.  A  society  in  which  a  few 
men  are  the  employers  and  the  great  body  are 
merely  employes  or  servants,  is  not  the  most  de- 
sirable in  a  republic ;  and  it  should  be  as  much  the 
policy  of  the  laws  to  multiply  the  numbers  en- 
gaged in  independent  pursuits  or  in  the  profits  of 
production  as  to  cheapen  the  price  to  the  con- 
sumer. Such  policy  would  tend  to  an  equality  of 
fortunes  among  its  citizens,  thought  to  be  so  de- 
sirable in  a  republic,  and  lessen  the  amount  of 
pauperism  and  crime."* 

of  playing  cards,  and  as  well  those,  as  ioo  other  grosses  of  playing 
cards,  none  of  which  were  made  within  the  realm,  or  imported 
within  the  realm  by  the  plaintiff,  or  his  servants,  factors,  or  depu- 
ties, &c.  nor  marked  with  his  seal,  he  had  imported  within  the 
realm,  and  them  had  sold  and  uttered  to  sundry  persons  unknown, 
and  showed  some  in  certain,  wherefore  the  plaintiff  could  not  utter 
his  playing  cards,  &c.  Contra  formam  praedicf  literal  patentium, 
et  in  conlemptum  dictac  dominae  Reginae,  whereby  the  plaintiff 
was  disabled  to  pay  his  farm,  to  the  plaintiff's  damages.  The  de- 
fendant, except  to  one  half  gross  pleaded  not  guilty,  and  as  to  that 
pleaded,  that  the  city  of  London  is  an  ancient  city,  and  that  within 
the  same,  from  time  whereof,  &c.  there  has  been  a  society  of 
Haberdashers,  and  that  within  the  said  city  there  was  a  custom, 
quod  quaelibet  persona  de  societate  ilia,  usus  fuit  et  consuevit 
emere  vendere  et  libere  merchandizare  omnem  rem  et  omnes  res 
merchandizabiles  infra  hoc  regnum  Angliae  de  quocunque,  vel  qui- 
buscunque  personis,  et  &*c.  and  pleaded,  that  he  was  civis  et  liber 
homo  de  civitate  et  societate  ilia,  and  sold  the  said  half  gross  of 
playing  cards,  being  made  within  the  realm,  &c.  as  he  lawfully 
might;  upon  which  the  plaintiff  demurred  in  law." 

This  quotation  is  also  found  in  Beach  (loc.  cif.),  but  as 
there  given  it  contains  an  astonishing  number  of  errors. 

*  In  State  ex  rel.  vs.  Standard  Oil  Company,  49  Ohio  St., 
220 


EVILS    AND    REMEDIES 

It  is  frequently  stated  by  courts — as  it  was  by 
Hume,  and  as  it  is  continually  by  popular  writers 
—  that  the  monopolist  may  exact  what  price  he 
pleases,  following  in  this  the  dictum  of  the  Eng- 
lish court  of  1602.  Our  exposition  of  the  law  of 
monopoly  price  shows  that,  strictly  speaking,  this 
is  not  true  even  in  the  case  of  an  absolute  monop- 
oly. It  being  assumed  that  men  are  governed  by 
rational  motives,  the  monopolist,  discovering  that 
he  has  not  control  over  demand  and  consumption, 
has  to  put  upon  the  monopolized  article  or  service 
that  price  which  will  induce  a  sale  sufficient  to  yieloV 
him  the  largest  gains.  It  is  not  necessary  to  enter 
into  this  at  greater  length  at  the  present  time.  The 
outcome  is  that  frequently  the  monopoly  price  is 
not  so  high  as  one  would  be  at  first  inclined  to  an- 
ticipate. Very  frequently  it  is  relatively  but  little 
higher  than  it  would  be  if  the  industry  were  com- 
petitive, and  occasionally  not  at  all  higher.  Some 
students  and  some  spokesmen  for  monopolies,  ob- 
serving this,  have  represented  the  increase  in  price 
due  to  monopoly  as  something  of  little  significance. 
There  are,  however,  several  reasons  why  we  must  re- 
gard this  view  as  decidedly  erroneous.  First,  we 
may  take  as  a  premise  from  which  to  reason  deduc- 
tively the  familiar  experience  and  common  knowl- 
edge of  men,  thus  taking  as  our  basis  that  ground 
which  served  as  a  foundation  for  the  English  classi- 

137, 187  ;  Supreme  Court,  30  N.  E.  Rep.,  279  (1892).    Quoted 
by  Cooke  in  Trade  and  Labor  Combinations,  p.  97. 

221 


MONOPOLIES    AND    TRUSTS 

cal  school  of  economics ;  and  to  this  course  there 
can  be  no  objection,  provided  other  possible  lines 
of  argument  are  duly  considered.  We  appeal  to  the 
experience  of  men  to-day.  Is  it  found,  so  far  as  we 
may  learn  from  observation,  that  when  monopoly 
is  really  secured,  monopolistic  prices  are  advanced? 
It  is  believed  that  the  answer  returned  by  the  un- 
biased will  be,  almost  unanimously,  yes. 

We  next  make  our  appeal  to  history,  and  the 
utterances  of  history  are  clear  and  unmistakable. 
We  have  already  noted  the  fact  that  the  courts 
were  so  impressed  with  the  high  prices  of  monopo- 
lized articles  that  it  became  a  judicial  dictum  that 
the  monopolist  could  charge  what  price  he  pleased. 
For  centuries,  the  courts  of  England  and  America 
have  been  under  the  impression  that  monopoly 
price  means  high  price,  and  in  a  matter  of  this  kind 
especial  weight  should  be  given  to  their  utterances. 
Cases  have  come  before  them  and  they  have  had 
facts  presented  to  them,  so  that  in  this  particular 
they  should  know  whereof  they  speak.  Of  course, 
an  explanation  of  the  theory  of  monopoly  is  an  en- 
tirely different  matter,  and  it  does  not  at  all  follow 
that  we  should  look  to  judicial  utterances  for  that. 

In  the  next  place  we  observe  the  impression  made 
by  monopolies  upon  historians.  Hume  speaks  about 
the  prices  of  monopolized  articles  as  exorbitant,  and 
cites  particularly  the  case  of  salt,  the  price  of  which 
had  in  some  places  been  increased  tenfold  or  more. 

It  would  thus  appear  that  historical  experience 
warrants  the  belief  that  very  generally  those  prices 


EVILS    AND    REMEDIES 

of  monopolized  articles  and  services  which  yield 
the  highest  net  returns  are  very  decidedly  higher 
than  competitive  prices.  Dealing  with  human  nat- 
ure as  we  find  it,  we  have  no  reason  to  suppose 
that  it  has  so  changed  that  the  monopolist  to-day 
will  be  more  lenient  in  the  use  of  his  power  over 
price  than  he  has  been  in  the  past.  Professor  Al- 
fred Marshall  suggests,  it  is  true,  a  willingness  on 
the  part  of  the  monopolist  to  accept,  from  purely 
philanthropic  motives,  a  lower  price  than  he  could 
successfully  ask,  and  thus  to  share  his  gains  with 
society  at  large.*  But  when  and  where  has  this 
happened?  We  have  no  large  experience  in  the 
United  States  which  would  substantiate  that  view. 
We  might  not  be  disappointed  should  we  hope  that 
the  monopolist  would  contribute  for  a  public  pur- 
pose some  of  the  gains  of  monopoly,  but  in  our 
public  policy,  if  the  monopolist  is  left  to  his  own 
devices,  we  cannot  hope  that  monopoly  prices  will 

*  In  his  Economics  of  Industry,  it  is  stated  that  one  reason 
why  a  monopolist  may  lower  his  price  is  his  concern  "for 
the  well-being  of  the  consumer,"  since  a  very  little  sacrifice 
on  the  part  of  the  monopolist  will  frequently  add  very 
greatly  to  the  gains  of  the  consumer.  After  mentioning 
two  cases  of  prices  lowered  by  the  monopolist,  he  adds: 
"  In  some  other  cases  the  owners  of  a  monopoly  will  take 
a  price  that  affords  them  less  than  the  greatest  net  revenue, 
because  they  are  willing  to  sacrifice  themselves  a  little  in 
order  to  benefit  the  consumers  of  their  goods  much."  This 
is  in  book  v.,  chapter  viii.,  section  2,  of  the  edition  of  1892. 
This  expression  of  opinion  appears  to  be  omitted  from  the 
corresponding  chapter  of  the  third  edition  of  1899. 

223 


MONOPOLIES    AND    TRUSTS 

be  less  than  the  highest  which  yield  the  largest  net 
returns. 

A  statistical  investigation  of  monopoly  prices 
suggests  itself,  but  we  have  no  body  of  statistics 
bearing  upon  this  question  sufficiently  large  and  ac- 
curate to  tell  us  all  that  we  would  like  to  know. 
We  may,  however,  say  that  such  researches  as  we 
have  had  indicate  that  in  the  case  of  monopoly 
prices  of  all  important  articles  and  services,  the 
price  which  will  yield  the  largest  net  returns  is  far 
higher  than  the  competitive  price,  in  cases  where  it 
is  possible  to  have  a  truly  competitive  price  ;  and 
that  in  the  case  of  those  services  which  are  of  such 
a  nature  that  it  is  impossible  to  tell  what  a  com- 
petitive price  is — for  example,  municipal  monopo- 
lies— the  price  will  be  far  higher  than  that  yielding 
normal  returns.  It  appears  to  be  a  moderate  state- 
ment that  monopoly  price  will  frequently  go  one 
hundred  per  cent,  above  the  competitive  price.* 
The  case  of  baggage  transfer  and  transfer  of  pass- 
engers in  Chicago  has  been  cited.     Street-car  traffic 

*  The  De  Beers  Mining  Company  controls  the  four  great 
diamond  mines  in  Kimberley,  South  Africa.  It  has  closed 
two  of  the  mines,  and  by  thus  restricting  production  has  kept 
the  price  of  diamonds  at  twenty-three  shillings  per  carat, 
although  before  the  combination  the  price  had  fallen  as  low 
as  eighteen  shillings  and  sixpence  per  carat.  The  increase 
in  price  indicated  is  nearly  twenty-five  per  cent.,  and  this 
was  brought  about  by  a  partial  monopoly  in  the  case  of  an 
article  ranking  among  the  luxuries.  See  The  American 
Monthly  Review  of  Reviews,  November,  1899,  p.  550. 

224 


EVILS    AND    REMEDIES 

in  our  large  cities  may  also  be  instanced.  Such  in- 
vestigations as  we  have  had  would  indicate  that 
in  every  great  American  city  a  three -cent  street- 
car fare,  increasing  the  traffic  very  largely,  would 
yield  ample  returns  upon  all  the  capital  actually 
invested,  and  would  highly  remunerate  all  the  la- 
bor power  and  managing  capacity  employed.  Yet 
the  usual  rate  is  higher  by  sixty-six  and  two-thirds 
per  cent.  This  is  an  enormous  surplus,  so  far  as 
the  single  fare  is  concerned,  preventing  many  who 
most  need  the  service  from  riding;  and  it  is  an 
enormous  surplus  also,  so  far  as  the  aggregate  is 
concerned,  yielding  unearned  wealth  amounting  to 
millions  upon  millions  in  the  great  cities  of  our 
country.* 

But  even  if  the  price  is  raised  only  a  little  above 
the  competitive  price,  it  is  a  serious  matter.  The 
result  is  a  privileged  class  of  monopolists  in  the 
community,  who,  in  the  general  struggle  for  exist- 
ence and  economic  well-being,  perpetually  have  at 
least  a  slight  advantage  on  their  side.  Now,  in  the 
struggle  for  existence  in  human  society,  as  well  as 
in  the  animal  and  vegetable  world,  a  slight  ad- 
vantage always  turned  on  one  side  is  a  matter  of 
the  utmost  moment,  and  is  sufficient  to  be  decisive 
in  domination  and  survival. 

♦Reference  on  this  point  may  be  made  to  the  volume, 
Municipal  Monopolies,  edited  by  Professor  E.  W.  Bemis, 
which  gives  the  results  of  the  most  careful  investigations 
made  up  to  the  present.  Much  interesting  material  is  also 
found  in  the  quarterly  publication,  Municipal  Affairs. 
P  225 


MONOPOLIES    AND    TRUSTS 

Mention  is  also  made  by  the  courts  of  deterio- 
ration in  quality,  and  it  is  believed  by  the  writer 
that  the  point  is  well  taken.  We  see  the  natural 
operation  of  monopoly  in  this  particular  whenever 
it  has  secured  its  position.  Reliance  is  placed  upon 
the  monopoly  instead  of  upon  excellence  of  work, 
and  it  is  only  in  the  transition  period  that  the  con- 
trary is  likely  to  be  the  case.  We  have  to  do  here 
with  well-known  principles  of  human  nature.  It 
proves  nothing,  but  affords  an  illustration  which 
many  a  reader  can  duplicate  from  his  own  experi- 
ence, when  the  writer  states  that  he  is  obliged  to 
use  daily  a  monopolized  article  of  which  the  price 
has  been  raised  more  than  fifty  per  cent.,  while  at 
the  same  time  the  quality  has  deteriorated  as  shown 
by  laboratory  tests.  No  mathematical  proof  can 
be  afforded  of  the  position  taken  by  the  courts,  but 
reference  can  be  made  to  common  experience  and 
to  the  well-known  principles  of  human  nature,  war- 
ranting, it  is  believed,  the  conclusion  that  only  ef- 
fective control  can  counteract  this  tendency  of  mo- 
nopoly to  furnish  articles  of  inferior  quality.  This 
holds  true  both  of  private  monopoly  and  public 
monopoly.     The  question  is,  Whence  the  control  ? 

The  third  point  made  is  one  to  which  in  recent 
discussions  too  little  attention  has  been  given,  and 
especially  was  this  noticeable  at  the  Trust  Confer- 
ence held  in  Chicago.  In  the  case  of  those  busi- 
nesses which  naturally  belong  to  the  monopolistic 
field  we  have  to  accept  the  fact  of  monopoly  and 
make  the  best  of  it.     When  we  do  this  we  secure 

226 


EVILS    AND    REMEDIES 

the  largest  amount  of  benefits  with  the  smallest 
amount  of  evils.  It  is,  however,  a  hardship  when, 
by  public  or  private  favoritism,  some  are  driven  out 
of  a  business  which  naturally  belongs  to  the  com- 
petitive field.  If  a  producer  has  established  an 
independent  economic  existence,  it  is  a  grievous 
wrong  to  him  to  be  forced  out  of  it  against  his 
will  through  the  brute  force  of  monopoly,  and  not 
through  the  natural  workings  of  competition.  It 
is  not  sufficient  that  he  should  be  paid  a  price  for 
his  business,  even  though  the  price  be  a  fair  one. 

Moreover,  we  must  not  only  consider  the  influ- 
ence of  monopolies  in  driving  others  from  their 
own  monopoly  field,  but — particularly  when  we  are 
speaking  of  monopolies  built  upon  favoritism — we 
must  also  consider  their  influence  in  oppressing 
those  who  produce  the  raw  material  or  other  prod- 
ucts which  the  monopolies  use.  Much  complaint 
is  made,  and  apparently  with  justice,  that  in  these 
cases  we  have  buyers'  monopolies  which  are  op- 
pressive to  those  who  are  called  prime  producers. 
Thus,  the  producers  of  crude  petroleum  feel  them- 
selves much  aggrieved  by  the  monopoly  to  which 
they  offer  their  product,  and  while  it  would  appear 
that  its  low  price  has  been  very  largely  something 
beyond  the  power  of  the  monopoly  in  the  refining 
of  oil  to  control,*  even  so  conservative  a  writer  as 

*The  Standard  Oil  Company  seem  in  a  way  to  be  between 
the  upper  and  nether  millstones.  They  must  persuade  the 
producers  that  they  do  what  they  can  to  keep  up  the  price 

227 


MONOPOLIES    AND    TRUSTS 

M.  de  Rousiers  leaves  the  impression  that  producers 
of  crude  oil  are  in  the  power  of  the  monopoly,  and 

of  crude  oil,  while  they  endeavor  to  convince  the  consumer 
that  they  have  reduced  the  price  of  refined  oil. 

It  is  sometimes  alleged  by  those  standing  near  the  pro- 
ducers and  speaking  for  them,  that  the  excessive  gains  of 
monopoly  come  exclusively  from  the  depression  in  prices 
paid  to  the  prime  producers,  who  are  made  the  beasts  of 
burden  of  monopolists.  It  is  argued  that  high  prices  to 
consumers  would  beget  dangerous  discontent,  and  that  it 
is  far  safer  to  oppress  the  producers,  whose  dispersion 
into  small  groups  renders  united  action  on  their  part  dif- 
ficult. While  our  discussion  does  not  warrant  such  a  con- 
clusion, the  following  quotation  from  an  article  in  the 
Petroleum  Gazette  of  May  27,  1897,  entitled  "Monopolizing 
Combinations  vs.  the  Producer,"  does  bring  forward  one 
direction  in  which  monopoly  will  act  whenever  it  has  the 
opportunity : 

"  The  interest  of  all  aggregations  of  capital  in  restraint  of  open, 
free  competition  in  the  purchase,  manufacture,  distribution,  and 
final  sale  of  the  products  of  industry  to  consumers  is  directly  op- 
posed to  that  of  the  producers  of  raw  materials  as  well  as  that  of 
those  engaged  in  the  varied  branches  of  commerce  which  springs 
from  the  effort  to  satisfy  their  requirements. 

"  The  corner-stone  of  all  these  combinations  must  be  the  control 
of  the  price  of  raw  produce,  and  the  extent  of  this  restraint  on  prime 
markets  is  the  measure  of  success  in  monopolizing  any  branch  of 
trade.  In  the  recent  investigation  of  the  Sugar  Trust,  Mr.  Searles, 
its  secretary,  testified  that  by  being  the  largest  buyer  his  company 
had  been  able  to  keep  down  the  price  of  the  raw  sugar,  and  thus  to 
make  the  refined  article  cheap  to  consumers  and  its  manufacture 
profitable  to  the  trust.  In  all  instances  where  combinations  of  cap- 
ital have  seized  upon  and  become  possessed  of  the  avenues  of  distri- 
bution, the  segregated  producers  of  the  raw  produce  have  been 
forced  to  sell  their  output  at  prices  which  more  than  counterbalance 

228 


EVILS    AND    REMEDIES 

that  this  power  has,  in  some  instances  at  least,  been 
used  in  an  oppressive  manner.* 

Private  monopoly  has  been  regarded  as  some- 
thing odious.  The  common  law  of  England  has 
for  centuries  pronounced  against  it,  and  the  com- 
mon law  has  been  reinforced  by  statutes  in  the 
United  States.  History  pronounces  against  mo- 
nopoly, and  the  present  deep-seated  feeling  against 
it,  is  largely  a  survival  resulting  from  historical 
experiences.  Human  nature  is  so  constituted  as 
to  afford  decisive  objections  to  private  monopoly. 
The  same  old  arguments  against  despotism  which 

the  '  little  economies,'  '  the  aggregation  of  brains,'  '  the  introduction 
of  improved  methods,'  and  'the  cheapened  supply  to  ultimate  con- 
sumers.' Between  these  two  extremes  the  margin  of  profit  to  the 
combinations  has  been  sufficient  to  enrich  their  stockholders  and  to 
furnish  a  fund  to  prostitute  law  in  the  aggrandizement  and  perpetu- 
ation of  their  restrictions  on  commerce. 

"The  edict  of  the  Tobacco  Trust  goes  forth,  and  the  price  for 
the  tobacco  crop  responds ;  the  Standard  Oil  Trust  marks  the  price 
of  refined  either  up  or  down,  and  at  the  same  time  directs  its  pur- 
chasing agents  what  they  shall  pay  for  the  crude  supply.  If  com- 
petition enters  the  field  for  raw  sugar,  for  leaf  tobacco,  or  for  crude 
oil,  the  whole  machinery  of  the  combinations  who  assume  to  be 
Sugar,  Tobacco,  and  Oil  is  put  in  motion  to  drive  out  the  intruders, 
and  this  is  usually  accomplished  by  lowering  ultimate  markets  and 
forcing  prime  markets  to  respond.  Under  all  circumstances  the 
producers  are  made  the  beasts  of  burden,  and  the  revenues  rendered 
necessary  in  the  subordination  of  legislation,  in  the  prostitution  of 
courts,  and  in  the  manipulation  of  distributive  tolls,  become  taxes 
on  the  producers,  and  are  assessed  and  collected  through  reduced 
prime  markets." 

*  See  Les  Industries  Monopolisms  aux  Etats-  Unis,  chapter 
ii.,  on  "  Le  trust  du  petrole." 

229 


MONOPOLIES    AND    TRUSTS 

we  have  gone  over  again  and  again  in  political  sci- 
ence until  they  have  been  thoroughly  threshed  out 
and  conclusions  have  been  reached  for  civilized 
society,  hold  equally  against  private  monopoly. 
Political  despotism  is  good  in  its  government  if  we 
have  a  good  despot.  But  we  do  not  want  despot- 
ism, because,  on  the  one  hand,  we  dare  not  trust 
human  nature,  and,  on  the  other  hand,  we  prefer  to 
govern  ourselves.  We  may  make  some  mistakes, 
but  we  have  the  satisfaction  of  governing  ourselves, 
and  we  also  have  the  development  of  intellect  and 
character  which  proceeds  from  so  doing.  So,  too, 
economic  despotism  has  some  advantages,  doubt- 
less, if  the  monopolists  who  exercise  this  despotism 
are  good  men  ;  but  we  fear  to  trust  human  nature, 
and  we  wish  self-government  so  far  as  may  be  in 
industrial  affairs.*    We  observe  also  the  insolence  of 

*  The  Supreme  Court  of  Ohio  in  a  decision  of  March  27, 
1891,  uses  these  wise  words :  "  Much  has  been  said  in  favor  of 
the  objects  of  the  Standard  Oil  Trust,  and  what  it  has  ac- 
complished. It  may  be  true  that  it  has  improved  the  qual- 
ity and  cheapened  the  costs  of  petroleum  and  its  products  to 
the  consumer.  But  such  is  not  one  of  the  usual  or  general 
results  of  a  monopoly ;  and  it  is  the  policy  of  the  law  to 
regard,  not  what  may,  but  what  usually  happens.  Experi- 
ence shows  that  it  is  not  wise  to  trust  human  cupidity,  where 
it  has  the  opportunity  to  aggrandize  itself  at  the  expense  of 
others.  The  claim  of  having  cheapened  the  price  to  the 
consumer  is  the  usual  pretext  on  which  monopolies  of  this 
kind  are  defended  ;  and  is  well  answered  in  Richardson  vs. 
Buhl,  77  Mich.,  632.  After  commenting  on  the  tendency  of 
the  combination,  known  as  the  Diamond  Match  Company, 

230 


EVILS    AND    REMEDIES 

private  monopoly  wherever  it  even  begins  to  get  se- 
curely on  its  feet.  Representatives  of  a  great  mo- 
nopoly said  to  a  distinguished  gentleman  in  Ohio 
in  regard  to  an  independent  producer,  "  We  are 
going  to  wind  him  up  now  very  soon,"  and  said  it 
with  positive  glee.  The  same  thing  was  said  by 
the  representatives  of  a  monopoly  concerning  an 
independent  dealer  in  the  author's  home  city.  A 
few  months  later  that  which  had  been  predicted 
befell.  Here  again  we  deal  simply  with  illustra- 
tions, and  readers  can  verify  the  truth  of  what  is 
said  by  their  own  experience  and  by  their  own 
judgments  concerning  human  nature.  It  is  on  ac- 
count of  the  odious  character  of  private  monopoly 
that  the  general  conviction  has  been  reached,  both 
in  England  and  the  United  States,  that  it  is  con- 
trary to  the  principles  of  Anglo-Saxon  liberty  to 
allow  it  to  go  uncontrolled,  and  that  the  right  to 
control  has  in  both  countries  been  placed  beyond 
controversy  by  judicial  interpretations  of  the  com- 
mon law.  There  is,  then,  only  one  question  before 
us,  and  that  is,  how  to  exercise  the  control. 

to  prevent  fair  competition  and  to  control  prices,  Champlin, 
J.,  said :  'It  is  no  answer  to  say  that  this  monopoly  has  in 
fact  reduced  the  price  of  friction  matches.  That  policy  may 
have  been  necessary  to  crush  competition.  The  fact  exists 
that  it  rests  on  the  discretion  of  this  company  at  any  time 
to  raise  the  price  to  an  exorbitant  degree.' 

"  Monopolies  have  always  been  regarded  as  contrary  to 
the  spirit  and  policy  of  the  common  law." 

State  ex  rel.  vs.  Standard  Oil  Company,  Ohio  State  Re- 
ports, 49,  p.  1 86. 

231 


MONOPOLIES    AND    TRUSTS 

Before  we  go  further,  however,  it  must  be  stated 
that  the  evils  of  monopoly  exist  chiefly  in  the 
United  States.  We  hear  much  in  these  days  about 
the  trusts  in  England  and  France  and  other  parts 
of  Europe;  but  what  is  said  in  this  particular  is 
misleading.  Why  is  it  that  there  is  no  such  thing 
as  an  agitation  against  trusts  in  these  countries? 
Leaving  out  Germany,  where  there  is  some  discus- 
sion of  combinations  of  manufacturers  and  where 
some  evils  have  been  experienced  from  them,  it  is 
beyond  controversy  that  there  is  little  effort  di- 
rected against  trusts,  so  called ;  and  even  in  Ger- 
many there  is  nothing  which  can  be  dignified  by 
the  name  of  agitation.  M.  de  Rousiers  speaks 
very  clearly  on  this  subject,  and  as  what  he  says 
harmonizes  with  the  most  trustworthy  information 
which  the  present  author  is  able  to  secure,  a  quo- 
tation bearing  upon  this  particular  topic  is  here 
offered : 

"In  Europe  as  well  as  in  America  the  phenomenon  of 
the  trust  is  possible.  If  in  England  there  is  no  example 
of  one,  it  is  because  the  necessary  artificial  condition 
of  monopoly  is  not  found.  The  establishment  of  free 
trade  has  removed  the  abuses  of  state  intervention  in 
private  industrial  affairs,  and  public  interests  have  been 
sufficiently  protected  by  those  who  have  had  them  in 
charge  to  avoid  the  confiscation  of  public  services  (pub- 
lic utilities)  for  the  benefit  of  private  citizens  without 
guarantees  and  compensation. 

"  In  France  and  in  Germany  the  public  services  have 
been   too  jealously  guarded  to  afford  room  for  trusts, 

232 


EVILS    AND    REMEDIES 

but  the  same  system  of  protectionism  has  furnished  a 
favorable  occasion  for  the  establishment  of  trusts  in 
private  industry. 

"Fortunately  the  natural  but  exceptional  circum- 
stances which  we  have  observed  meeting  together  in 
America  in  the  case  of  the  prosperous  trusts  are  en- 
countered more  rarely  in  Europe.  The  sugar  industry, 
which  has  been  placed  under  an  artificial  regime  by  the 
enormous  tax  which  rests  upon  its  consumption,  added 
to  bounties  upon  exportation,  furnishes  us  with  the  sole 
French  example  of  a  de  facio  monopoly  in  private  in- 
dustry. The  Russian  petroleum  and  Austrian  petroleum 
are  also  considered  as  objects  of  monopoly.  Finally, 
the  mining  and  iron-  and  steel-working  industries  have 
given  rise  to  numerous  attempts  to  form  agreements,  of 
which  some  have  been  crowned  with  success.  .  .  . 

"In  other  words,  the  trusts  are  not  essentially  an 
American  phenomenon.  If  we  suffer  less  in  Europe,  it 
is  not  because  we  are  less  advanced  in  industrial  evolu- 
tion. England,  which  leads  in  this  movement,  is  pre- 
cisely that  one  of  the  great  European  nations  which  is 
most  free  from  them ;  it  is  especially  because  we  have 
in  Europe  a  less  degree  of  confusion  of  public  and  pri- 
vate interests."* 

*  Les  Industries  Monopolisies  aux  Etats-Unis,  par  Paul  de 
Rousiers,  pp.  324-5. 

It  is  gratifying  to  the  present  author  to  find  agreement 
in  so  many  points  between  M  de  Rousiers  and  himself. 
Perhaps  this  agreement  has  significance,  inasmuch  as  it  was 
reached  by  different  methods  and  each  author  has  worked 
independently  of  the  other.  The  present  author  published 
the  more  important  views  concerning  which  there  is  agree- 
ment long  before  M.  de  Rousiers'  work  appeared,  whereas 

233 


MONOPOLIES    AND    TRUSTS 

An  instructive  article  appeared  some  time  since 
in  one  of  the  leading  German  newspapers*  in 
which  it  was  stated  that  the  reason  why  private 
monopolies  like  those  in  the  United  States  did  not 
exist  to  a  great  extent  in  Germany  was  that  the 
railways  there  were  State  railways,  and  that  all 
producers  and  dealers  were  treated  impartially. 
The  point  to  which  attention  is  called  is  the  state- 
ment that  the  non-existence  in  Germany  of  mo- 
nopoly problems  such  as  ours  is  something  familiar 
to  all  and  not  requiring  argument. 

In  recent  years,  however,  a  great  deal  has  been 
said  in  the  European  press  about  one  particular 
monopoly  in  Europe  which,  rightly  or  wrongly,  has 
been  found  objectionable,  and  that  is  the  Standard 
Oil  monopoly.  Objection  has  likewise  been  made, 
although  apparently  in  less  degree,  to  the  Russian 
monopoly,  which,  it  is  said,  is  acting  in  harmony 
with  the  American  monopoly.  Vigorous  efforts 
have  been  made  to  overcome  the  oil  monopoly,  and 
in  this  case  alone,  so  far  as  the  present  writer  is 
aware,  has  the  movement  against  monopoly  reached 
such  proportions  that  it  could  be  called  an  agi- 
tation. 

The  truth  of  the  matter  is,  that  the  European 
trusts,  of  which  we,  in  this  country,  have  been  hear- 
ing so  much  of  late,  are  generally  little  else  than 
ordinary  combinations,  not  at  all  shutting  out  com- 

the  latter,  following  his  own  lines  of  investigation,  has  evi- 
dently reached  his  conclusions  by  independent  processes. 
*  Die  Frankfurter  Zeitung. 
234 


EVILS    AND    REMEDIES 

petition,  and  simply  part  and  parcel  of  the  general 
movement  in  the  direction  of  an  enlargement  of  the 
business-unit,  and  they  are  usually  discussed  in  Eu- 
ropean countries  as  belonging  to  the  subject  of  in- 
dustrial combination. 

But  the  author  would  not  be  misunderstood. 
The  causes  which  produce  monopoly  in  the  United 
States  are  capable  of  producing  monopoly  in  other 
countries.  The  only  question  is,  To  what  extent 
are  the  same  causes  in  operation  in  the  countries 
of  Europe?  M.  de  Rousiers  has  already  men- 
tioned the  sugar  monopoly  in  France.  The  manu- 
facture of  sugar  is  also  approaching  the  condition 
of  a  monopoly  in  Germany,  and  considerable  com- 
plaint appears  to  have  arisen.*  It  is  taxation  which 
has  established  the  sugar  monopoly  in  Germany. 
The  German  producer  is  protected  by  customs 
duties  from  competition  with  foreign  producers, 
and,  in  addition  to  this  cause  of  monopoly,  in  itself 
scarcely  sufficient,  there  is  an  internal-revenue  tax- 
ation of  monopoly  which  is  so  framed  that  it  is 
difficult  for  new  refineries  to  gain  a  foothold.  After 
a  refinery  has  been  in  operation  for  a  year  it  pays 
only  a  proportionate  share  of  the  sugar  tax,  but  up 
to  that  time  it  has  to  pay  a  sum  on  each  ioo  pounds 
which  is  decidedly  in  excess  of  its  share  of  the  tax 
after  apportionment.  The  old  refineries  pay  an  ap- 
portioned tax.     In  other  words,  a  certain  sum  to  be 

*  See,  for   example,  "  Das    deutsche    Zuckermonopol," 
Wochenblatt  der  Frankfurter  Zeitung,  April  28,  1899. 
235 


MONOPOLIES    AND    TRUSTS 

raised  is  distributed  among  them.  The  new  refin- 
ery pays  a  definite  sum  on  each  ioo  pounds,  and 
this  is  higher  than  the  rate  under  apportionment. 

The  Russian  government  is  also  interested  in  a 
sugar  monopoly,  and  actually  assists  in  its  develop- 
ment, although  it  has  done  a  thing  which  to  an 
American  seems  curious.  When  the  price  of  sugar 
once  rose  to  a  high  point  the  Russian  government 
imported  a  large  amount  of  sugar,  and  sold  it  at  a 
price  which  put  down  and  kept  down  the  price  of 
sugar  to  a  price  established  by  the  government. 
There  are  some  who  have  recommended  such  a 
measure  as  this  to  repress  the  excesses  of  monopoly. 

Unskilful  governmental  taxation  is  everywhere 
capable  of  producing  monopoly. 

A  limited  supply  of  natural  treasures  will  pro- 
duce a  monopoly  in  Germany  or  France  just  as 
readily  as  in  this  country.  The  greatest  German 
State — Prussia — passed  a  law  in  1865  which  sepa- 
rates the  ownership  of  treasures  below  the  surface 
of  the  earth  from  agricultural  property,  rendering 
the  former  public  property.  The  effect  of  this 
measure,  if  properly  carried  out,  is  to  secure  any 
surplus  value  from  mining  for  public  use,  and  also 
to  render  control  over  mining  operations,  even 
when  privately  conducted,  more  effective.  It 
would  not,  however,  remove  the  naturally  favor- 
able condition  for  monopoly. 

Patent  monopolies,  and  monopolies  based  upon 
secret  processes,  may  be  anticipated  in  every  mod- 
ern country. 

236 


EVILS    AND    REMEDIES 

The  causes  which  do  not  operate  to  the  same 
extent  in  favor  of  monopoly  in  countries  like 
France,  England,  and  Germany  are  the  favoritism 
of  railways  and  the  dishonest  management  of  cor- 
porations. There  is  also  a  conscious  effort  in  those 
countries  so  to  regulate  patents  that  they  may  in- 
terfere as  little  as  possible  with  industrial  liberty 
while  accomplishing  their  main  purpose.  About 
this  a  word  will  be  said  later.* 

The  efforts  of  the  great  countries  of  Europe  have 
been  either  to  control  monopoly  or  to  prevent  it  by 
general  indirect  measures.  Perhaps  the  most  impor- 
tant discussion  of  industrial  combinations  ever  held 
in  Europe  was  that  which  took  place  at  a  meeting 
of  the  German  Union  for  Social  Politics  in  Vienna, 
in  September,  1894.  The  meeting  was  attended  by 
economists  of  the  first  rank,  and  the  discussion  was 
an  able  one.  Anything  resembling  the  cry  "  Smash 
the  trusts !"  was  not  heard.  The  proposals  for  re- 
form related  to  more  effective  control  over  large- 
scale  business,  especially  whenever  it  develops  any 
monopolistic  tendencies.  But  the  general  em- 
phasis was  upon  the  concentration  of  production. 
Reports  upon  various  combinations  {Kartelleri) 
were  made,  but  they  do  not,  in  the  opinion  of 
the  author,  contain  any  disclosures  not  in  harmony 
with  the  theory  of  the  present  work.f 

One  of  the  best-known  and  most  recent  essays 

*  Infra,  pp.  266-7. 

t  See  Schriften  des  Vereins  fUr  Socialpolitik,  vols.  60 
and  61. 

237 


MONOPOLIES    AND    TRUSTS 

on  concentration  in  England  is  that  by  Mr.  Henry 
W.  Macrosty,*  entitled  "  The  Growth  of  Monopoly 
in  English  Industry."  This  essay  presents  many 
interesting  facts  concerning  industrial  combinations, 
but  it  fails  to  disclose  any  considerable  growth  of 
monopoly  in  manufactures.  The  concentration  of 
production  is  sufficiently  proved,  and  the  belief  is 
expressed  that  this  concentration  will  terminate  in 
private  monopolies,  which  it  is  recommended  should 
first  be  stringently  controlled  and  afterwards  taken 
over  by  the  State  and  made  public  enterprises. 

It  has  been  stated  that  the  problem  with  which 
we  in  the  United  States  are  really  dealing  when 
we  speak  of  the  trusts  is,  among  other  things,  a 
problem  of  industrial  concentration.  We  have  al- 
ready discussed  this  problem  in  some  of  its  salient 
features.  Some  of  the  evils  which  are  connected 
with  industrial  concentration  are  such  as  are  natu- 
rally incident  to  a  period  of  rapid  growth  and  re- 
adjustment, like  that  through  which  we  have  been 
passing.  Some  of  the  evils,  like  child-labor,  which 
are  commonly  mentioned  in  this  connection,  are 
not  peculiar  to  large-scale  production,  and  are  fur- 
thermore being  successfully  overcome.  Other  evils 
will  find  treatment  in  connection  with  the  discus- 
sion of  private  corporations. 

The  third  problem  involved  in  a  popular  discus- 

*  The  essay  appeared  originally  in  The  Contemporary  Re- 
view (London),  March,  1899.  It  was  subsequently  enlarged 
and  printed  as  a  tract  by  the  English  Fabian  Society  in 
September,  1899. 

238 


EVILS    AND    REMEDIES 

sion  of  trusts  is  the  quite  distinct  one  of  wealth- 
concentration,  and  that  belongs  mainly  to  another 
portion  of  the  general  work  on  The  Distribution  of 
Wealth.  It  has  been  generally  admitted  by  phi- 
losophers and  statesmen  of  all  ages  that  there  is 
danger  in  wealth  concentration,  on  account  of  the 
vast  power  which  enormous  fortunes  bring  to  their 
owners.  There  is  scarcely  any  thoughtful  person 
who,  at  least  when  he  is  off  his  guard,  will  not 
make  confessions  which  show  that  he  regards  mam- 
moth fortunes  as  dangerous  to  those  who  own 
them,  and  still  more  so  to  their  children.*  From 
the  time  of  Aristotle  onward  it  has  been  held 
especially  dangerous  in  a  country  with  a  republican 
form  of  government  that  the  extremes  in  society 
should  be  very  widely  separated  with  respect  to 
property.  It  is  generally  held  that  it  is  better  in 
every  way  that  there  should  be  a  more  wide-spread 
diffusion  of  wealth  and  of  its  responsibilities.     The 

*  The  following  extract  from  the  daily  press  furnishes  an 
illustration : 

"  Young  Cornelius  Vanderbilt  has  designed  a  new  kind  of  loco- 
motive, which,  upon  being  tried,  proves  to  be  quite  an  improvement 
over  the  railroad  engines  now  in  use.  Mr.  Vanderbilt  was  disin- 
herited because  he  married  against  the  wishes  of  his  parents,  so  he 
got  a  job  in  the  mechanical  department  of  the  New  York  Central 
Railroad  and  went  to  work  for  a  living.  His  experience  shows  that 
it  might  be  a  good  thing  if  more  rich  men  would  give  their  un- 
fortunate boys  a  chance." 

This  may,  or  may  not,  be  a  true  statement  so  far  as  this 
particular  case  is  concerned ;  with  that  we  have  nothing 
to  do. 

239 


MONOPOLIES    AND    TRUSTS 

connection  between  wealth-concentration  and  mo- 
nopoly has  already  been  mentioned,  and  it  is  this  re- 
lationship which  has  especial  interest  for  us  in  the 
present  discussion.  A  few  further  words  about  this 
point  will  be  found  in  the  treatment  of  remedies.* 
Other  countries  than  the  United  States  have 
attempted  various  indirect  methods  to  prevent 
private  monopoly;  but  this  country  alone  has  di- 
rectly and  immediately  attacked  the  problem  and 
attempted  to  prevent  the  existence  of  private 
monopoly.  We  have  tried  legislative  prohibition, 
and  even  constitutional  prohibition  of  monopolies, 
especially  of  the  so-called  "trust  monopolies."  Dr. 
Ernst  von  Halle,  in  his  Trusts,  or  Industrial  Com- 
binations in  the  United  States  (pp.  17-18),  says: 

"By  the  end  of  1894  the  federal  government,  twen- 
ty-two states,  and  one  territory,  had  enacted  anti-trust 
laws.  The  first  provision  in  this  direction  was  intro- 
duced in  the  Constitution  of  Georgia  in  1877:  'The 
General  Assembly  shall  have  no  power  to  authorize  any 
corporation  to  make  any  contract  or  agreement  what- 
ever with  any  [other]  corporation  which  may  have  the 
effect,  or  be  intended  to  have  the  effect,  to  defeat  or 
lessen  competition  in  their  respective  business,  or  to 
encourage  monopoly;  and  all  such  contracts  or  agree- 
ments shall  be  illegal  and  void.'  This  was  not,  of  course, 
originally  directed  against  trusts,  but  against  railroads, 
but  it  could  afterwards  be  readily  applied  to  trusts. 
Anti-trust  laws  were  passed  in  1889  by  Kansas,  Maine, 
Michigan,  Missouri,  Nebraska,  North  Carolina,  Tennes- 

*  Infra,  pp.  264-6. 
240 


EVILS    AND    REMEDIES 

see,  Texas,  and  the  territories  of  Idaho,  Montana,  and 
North  Dakota;  and  the  new  states  of  Washington  and 
Wyoming  introduced  provisions  in  this  direction  into 
their  constitutions.  In  1890  anti-trust  laws  were  passed 
by  Iowa,  Kentucky,  Louisiana,  Missouri,  and  South 
Dakota.  In  189 1  Kentucky  and  Missouri  introduced 
similar  provisions  into  their  constitutions.  In  the  same 
year  Alabama,  Illinois,  Minnesota,  and  the  territory  of 
New  Mexico ;  in  1892  New  York  and  Wisconsin  legis- 
lated to  a  like  effect;  while  in  1893  California  forbade 
combinations  in  live-stock,  Nebraska  in  coal  and  lumber. 
Amendments  to  these  laws  were  passed  in  Missouri  and 
Tennessee  in  1891;  Louisiana  in  1892;  Illinois,  Minne- 
sota, and  South  Dakota  in  1893.  The  United  States  Act 
was  passed  in  1891,  and  the  tariff  act  of  August,  1894, 
makes  some  general  provisions  of  the  same  character  as 
to  the  regulation  of  prices.  No  anti- trust  legislation  was 
passed  in  1894  in  the  several  states." 

We  have  here  a  first  period  of  vigorous  legisla- 
tion against  trusts,  beginning  about  1889,  followed 
by  a  period  of  quiet ;  now  we  are  again  in  a  period 
of  active  trust  legislation.  Bills  have  recently  been 
introduced  into  several  state  legislatures.  One  in 
the  Wisconsin  legislature  was  declared  unconsti- 
tutional and  failed  to  receive  the  approval  of  the 
governor.  New  York  and  Indiana  introduced  bills 
into  their  legislatures  during  the  last  sessions,  and 
in  the  former  state  a  bill  has  been  passed  which  has 
attracted  some  attention.  Legislative  investiga- 
tions have  been  conducted  by  New  York  and  Ohio, 
and  elsewhere  the  subject  has  been  agitated.  A 
Q  241 


MONOPOLIES    AND    TRUSTS 

noteworthy  convention  called  to  consider  the  sub- 
ject of  trusts  was  held  in  Chicago  under  the  aus- 
pices of  the  Civic  Federation,  September  13-16 
of  the  current  year  (1899),  and  another  less  not- 
able one,  consisting  of  a  few  governors  and  attor- 
neys-general, was  held  the  week  following  in  St. 
Louis.  The  problem  has  never  been  more  active- 
ly agitated  than  at  the  present  time.  It  is  quite 
probable  that  a  great  many  more  anti- trust  laws 
forbidding  combination  will  be  passed  in  the  near 
future.  It  would  be  well,  however,  for  those  who 
desire  to  remedy  the  evils  of  which  complaint  is 
made  to  pause  for  a  time  before  recommending 
new  laws,  and  to  inquire  into  the  actual  results  of 
past  legislation.  It  is  instructive  to  read  on  the 
subject  of  trusts  the  newspaper  utterances  which 
appeared  in  the  latter  part  of  1892.  A  number  of 
these  lie  before  the  writer.  One  is  headed,  "Black 
Eye  for  the  Trusts — Important  Decision  handed 
down  in  Chicago";  another  has  the  heading,  "Trusts 
are  Illegal — Strong  Decision  of  the  New  York  Court 
of  Appeals " ;  another  clipping,  which  appeared 
somewhat  earlier  in  the  year,  tells  us  that  "  the 
Standard  Oil  Trust  has  resolved  upon  dissolution," 
in  obedience  to  the  law;  in  November  of  that 
year  an  editorial  which  appeared  in  a  prominent 
paper  expresses  the  hope  that  President  Harrison, 
making  use  of  the  Federal  Anti-Trust  Law,  "will 
deal  a  death-blow  to  trusts."* 

*  Many  similar  headings  can  be  found  in  copies  of  news- 
242 


EVILS    AND    REMEDIES 

Comment  on  these  utterances  of  the  press  is 
scarcely  necessary  to-day.  If  there  is  any  serious 
student  of  our  economic  life  who  believes  that  any- 
thing substantial  has  been  gained  by  all  the  laws 
passed  against  trusts,  by  all  the  newspaper  edito- 
rials which  have  thus  far  been  penned,  by  all  the 
sermons  which  have  been  preached  against  them, 
by  all  the  speeches  of  politicians  denouncing  them, 
this  authority  has  yet  to  be  heard  from.  Forms 
and  names  have  been  changed  in  some  instances, 
but  the  dreaded  work  of  vast  aggregation  of  capital 
has  gone  on  practically  as  heretofore.  The  writer 
does  not  hesitate  to  affirm  it  as  his  opinion  that 
efforts  along  lines  which  have  been  followed  in  the 
past  will  be  equally  fruitless  in  the  future. 

All  of  these  remedies  which  it  has  been  proposed 
to  try  are,  in  the  author's  opinion,  faulty  and  in- 
deed deplorable ;  should  they  become  so  thorough 
and  so  drastic  in  penalties  as  many  have  recklessly 
proposed,  the  results  might  be  nothing  short  of  a 

papers  issued  during  March,  1897.  The  headings  of  three 
which  lie  before  the  writer  are  as  follows  :  No.  1.  "  Pools 
are  hit  Hard. — United  States  Supreme  Court  Up- 
holds Sherman  Act.— Decision  is  a  Surprise. — Vir- 
tually Declares  all  Traffic  Agreements  Illegal. 
—  Competition  will  be  Open.  —  Railroads  will  be 
Amenable  to  Interstate  Commerce  Commission. — 
Managers  greatly  Concerned."  No.  2.  "Trusts  in 
a  Panic — Tobacco  Combine  Makes  the  First  Im- 
portant Surrender,"  etc.  No.  3.  "  Trusts  Busted. 
— Far-Reaching  Effects  of  the  Supreme  Court  De- 
cision." 

243 


MONOPOLIES    AND    TRUSTS 

national  calamity.*  The  true  remedies  must  not 
be  direct,  but  indirect.  If  a  law  is  passed  forbid- 
ding combination,  the  law  itself  shows  its  faulty 
character  and  that  it  was  framed  and  passed  by 
men  who,  if  sincere,  did  not  understand  the  nature 
of  the  problem  with  which  they  were  dealing,  and 
hence  attacked  not  causes,  but  symptoms. 

When  one  contemplates  all  this  legislation  and 
bears  in  mind  the  ineffectiveness  of  the  federal 
statute,  except  against  labor  unions,  one  sees  the 
force  of  M.  de  Rousiers'  sententious  assertion,  that 
our  law  has  been  strong  for  the  weak  and  feeble 
for  the  strong.f 

The  effect  of  constitutional  provisions  and  legis- 
lative enactments  against  trusts  thus  far  has  been 
to  increase  centralization  and  to  strengthen  mo- 
nopoly rather  than  otherwise.  It  was  possible  to 
forbid  various  corporations  to  put  their  business 
into  the  hands  of  a  common  board  of  trustees,  and 
thus  to  abolish  the  old  type  of  the  trust.  This, 
however,  was  going  very  far,  and  would  seem  to  be 

♦The  following  communication  to  a  well-known  news- 
paper furnishes  an  illustration  of  the  extremes  to  which 
some  thoughts  are  going,  as  well  as  their  futility :  "  Would 
not  a  statute  like  the  following  be  a  good  thing  for  trust- 
killing  ? — viz. :  An  act  that  no  person  shall  vote,  hold  office, 
or  sit  on  a  jury  or  obtain  any  writ,  warrant,  or  legal  process 
who  does  not  first  make  oath  that  he  is  not  interested 
directly  or  indirectly  in  the  profits  of  any  trust  or  similar 
organization.    If  that  would  not  kill  them,  what  can  ?" 

t  See  Les  Industries  Monopolisms  aux  Etats-Unis,  p.  124. 
244 


EVILS    AND    REMEDIES 

depriving  persons  of  one  of  the  rights  incident  to 
property.  It  has  not,  however,  been  found  possi- 
ble to  prevent  corporations  from  selling  their  busi- 
ness outright  to  a  new  corporation,  which  thus  ab- 
sorbs them,  and  it  is  difficult  to  see  how  this  can 
be  prevented  if  private  property,  as  we  now  under- 
stand it,  is  to  be  maintained.* 

Another  proposal  is  the  limitation  of  incorpora- 
tion and  the  refusal  of  the  corporate  form  of  busi- 
ness except  to  those  who  are  engaged  in  furnishing 
public  utilities — that  is  to  say,  engaged  in  businesses 
like  railways  and  gas-works,  which  fall  under  the 
classification  of  natural  monopolies,  belonging  to 
our  second  group.  It  has  not  appeared  clear  from 
any  previous  discussions  of  the  subject  what  pre- 
cise thing  it  is  proposed  should  be  accomplished  by 
the  limitation  and  refusal  of  incorporation  ;  where- 
as many  evils  would  be  the  inevitable  outcome.    It 

♦The  recent  decision  of  the  Supreme  Court  of  Illinois  in 
the  so-called  Glucose  Case,  forbidding  the  sale  of  the  prop- 
erty of  one  corporation  to  another  with  the  purpose  of  sup- 
pressing competition,  comes  too  late  for  extended  comment 
in  this  place.  The  author  does  not  believe  that  the  decision 
will  prove  at  all  effective  in  the  accomplishment  of  the  pur- 
pose of  anti-trust  legislation.  It  may  hereafter  be  interest- 
ing, however,  to  remember  this  heading  of  a  long  article 
which  appeared  in  one  of  the  organs  of  the  Farmers'  Alli- 
ance and  the  Industrial  Union :  "  The  Supreme  Court 
of  Illinois  makes  a  very  Radical  Decision  which 
Knocks  the  Trusts  '  Galley-West.'  All  the  Tricks 
and  Subterfuges  Brushed  Aside,  and  the  People 
Triumph." 

245 


MONOPOLIES    AND    TRUSTS 

should,  first  of  all,  be  considered  that  the  corpora- 
tion has  made  its  way  in  all  lands  of  industrial  civil- 
ization. In  the  struggle  for  existence  it  has  shown 
its  fitness  for  survival  among  all  business  forms. 
We  may  suppose,  then,  that  it  has  peculiar  advan- 
tages. If  so,  why  should  it  be  refused  ?  Why 
should  we  be  forced  to  do  business  in  some  other 
way  when  the  corporate  form  is  better?  Is  it  not 
taking  a  step  backward  if  we  refuse  to  utilize  im- 
proved business  methods? 

The  advantages  of  private  corporations  have 
been  described  so  frequently  and  are  withal  so  ob- 
vious that  it  is  scarcely  necessary  to  dwell  upon 
them  here.  The  private  corporation  makes  possi- 
ble the  massing  of  large  quantities  of  capital  for 
great  enterprises;  the  gathering  together  of  sums, 
large  and  small,  into  aggregates  of  any  desired  di- 
mensions. The  property  is  divided  into  shares  of 
stocks  and  into  bonds,  and  thus  there  may  be  wide- 
spread participation  in  vast  enterprises,  giving  us  a 
diffusion  of  property  with  concentration  of  produc- 
tion. The  limitation  of  risk  is  also  an  advantage, 
and,  if  properly  guarded,  gives  no  just  cause  for 
complaint.  I  may  be  willing  to  invest  $500,  but 
no  more,  in  some  enterprise  which,  if  successful, 
will  result  in  important  social  as  well  as  individual 
benefits,  but  which  is  attended  with  risks,  as  are 
most  new  undertakings.  If  it  is  known  that  I  invest 
precisely  $500,  and  no  more,  no  one  is  wronged,  so 
far  as  I  am  concerned.  It  is  thus  that  great  natural 
resources  have  been  opened  up.     The  corporation, 

246 


EVILS    AND    REMEDIES 

on  account  of  the  continuity  of  its  existence,  avoids 
many  accidents  to  which  natural  persons  are  ex- 
posed, and  this  feature  also  has  its  marked  advan- 
tages. A  century  and  a  quarter  ago  Adam  Smith 
concluded  that  on  account  of  the  keener  action  of 
self-interest  in  individual  businesses  and  partner- 
ships, corporations  could  not  succeed  except  in  the 
case  of  those  engaged  in  transportation  and  a  few 
other  enterprises.  But  everywhere  the  corporation 
has  gone  on  winning  its  way,  and  has  absorbed  a 
very  large  proportion  of  the  business  of  the  civiliz- 
ed world.  Moreover,  if  we  examine  into  the  discus- 
sions of  private  corporations  in  modern  countries 
we  find,  to  be  sure,  proposals  of  reform  more  or 
less  far-reaching;  but,  with  the  fewest  exceptions, 
we  find  it  nowhere  suggested  by  thoughtful  and 
well  -  informed  persons  that  private  corporations 
should  be  abolished.  As  has  been  said,  it  has  been 
suggested  by  a  few  in  this  country  that  private  cor- 
porations should  be  abolished,  with  the  exception 
of  those  engaged  in  providing  public  utilities.  Curi- 
ously enough,  however,  it  is  precisely  in  the  case  of 
these  undertakings  that  we  find  a  conviction  shared 
by  many  persons  of  intelligence  and  large  experi- 
ence that  incorporation  should  be  refused ;  and  the 
movement  which  seems  to  be  most  promising  in  the 
direction  of  the  abolition  of  private  monopoly  is  the 
replacing  of  private  corporations  in  these  undertak- 
ings by  public  ownership  and  management. 

But  if  this  suggestion  of  the  limitation  of  incor- 
poration should  prevail,  who  would  gain  anything 

247 


MONOPOLIES    AND    TRUSTS 

thereby  ?*  It  would  limit  participation  in  busi- 
nesses of  large  magnitude,  and  also  very  largely  in 
many  smaller  enterprises,  and  it  would  bring  about 
the  closer  union  of  rich  people ;  and  as  the  poor 
would  of  necessity  be  shut  out  by  the  risks  and  re- 
sponsibilities attendant  upon  a  large  proportion  of 
the  business  of  the  world,  the  general  tendency  of 
the  movement  would  be  monopolistic.f 

Among  other  remedies  suggested  is  that  of  tax- 
ation. This  need  not,  however,  detain  us  long. 
Arguments  which  have  already  been  advanced  in 
this  book  show  that  a  discriminating  tax,  like  that 
which  Missouri  has  recently  passed  X  against  depart- 

*  An  item  in  the  daily  press  tells  us  that  what  was  the 
"  Deering  Harvester  Company"  has  become  a  partnership. 
No  one  has  as  yet  described  the  public  gain  resulting  from 
the  change. 

t  The  author's  views  concerning  private  corporations 
find  further  elaboration  in  three  articles  written  by  him 
entitled,  respectively,  "  The  Nature  and  Significance  of 
Corporations,"  "The  Growth  of  Corporations,"  and  "The 
Future  of  Corporations,"  which  appeared  in  Harper's 
Monthly  Magazine  in  the  issues  for  May,  June,  and  July, 
1887. 

\  See  Laws  of  Missouri,  1899,  pp.  72  et  seqq.  This  law, 
which  went  into  effect  September  16  of  this  year,  divides 
into  classes  and  groups  the  goods  which  mercantile  estab- 
lishments of  all  kinds  handle.  Thus,  the  group  Dry  Goods 
embraces  classes  one  to  eight,  inclusive ;  the  group  Cloth- 
ing embraces  the  classes  from  eight  to  fifteen,  inclusive, 
with  the  exception  of  class  twelve ;  the  group  Hats  and  Caps 
includes  classes  ten,  twelve,  fourteen,  and  fifteen,  which, 
with  the  exception  of  class  twelve,  are  also  included,  as  may 

248 


EVILS    AND    REMEDIES 

ment-stores,  is  socially  injurious,  as  it  tends  to  pre- 
vent the  development  of  business  forms  which  are 
most  advantageous.  In  so  far,  however,  as  exist- 
ing taxation  discriminates  against  the  small  pro- 
ducer—  and  it  does  so  to  a  very  considerable  ex- 
tent—  the  remedy  suggests  itself.  The  reform  of 
taxation  has  a  general  importance,  and  here  as  else- 
where it  will  be  helpful.  One  or  two  special  appli- 
cations of  taxation  are  recommended  by  the  author 
as  among  the  remedies  for  the  evils  of  the  existing 
situation.  Taxation,  however,  can  only  be  looked 
upon  as  one  among  other  remedies,  and  its  relative 
significance  may  easily  be  over-estimated. 

We  turn  our  attention  now  to  some  of  the  more 
conservative  suggestions,  passing  over  them  has- 
tily, in  order  to  preserve  due  proportion  in  the  pres- 
ent volume.  In  some  quarters  it  has  been  suggested 
that  natural  law  furnishes  a  remedy,  inasmuch  as 
under  natural  law,  according  to  the  allegations  of 
those  who  make  this  proposal,  the  return  on  capital 

be  seen  in  the  group  Clothing.  Other  groups,  with  the  in- 
cluded classes,  are  similarly  arranged.  The  law  provides 
that  in  cities  having  a  population  of  fifty  thousand  or  more, 
the  proprietors  of  stores  employing  fifteen  or  more  persons 
shall  pay  a  license  fee  of  not  less  than  $300  nor  more  than 
$500  for  the  sale  of  "  every  class  or  group,  or  for  any  par- 
ticular article  of  any  class  or  group  mentioned  in  the  ap- 
plication for  such  license,  being  in  addition  to  the  class  or 
group"  which  the  proprietor  may  choose  to  regard  as  the 
basis  of  his  business.  For  the  sale  of  this  one  line  of  goods 
no  license-fee  is  charged.  The  law  at  least  gives  promise 
of  long  litigation. 

249 


MONOPOLIES    AND    TRUSTS 

tends  to  fall  continuously  in  proportion  to  the  re- 
turn for  present  labor  and  enterprise,  so  that  those 
who  are  at  any  given  moment  engaged  in  the  world's 
work  enjoy  a  constantly  increasing  advantage  over 
those  whose  dependence  is  upon  capital  accumula- 
tions resulting  from  past  efforts.  This  is  a  return 
to  the  optimism  of  Frederic  Bastiat,  whose  writings 
attracted  considerable  attention  about  the  middle 
of  this  century.  His  economic  theories  have  gen- 
erally been  rejected  by  science.  Without  now  en- 
tering at  length  into  a  discussion  of  this  theory,* 
attention  may  be  called  to  the  fact  that  many 
features  of  significance  are  overlooked  by  its  advo- 
cates. We  have  to  consider  not  merely  the  per- 
centage of  return  on  capital,  but  the  increase  in 
quantity  of  capital.  We  have  to  consider  also  not 
merely  the  returns  on  actual  investments  of  capi- 
tal, but  the  returns  to  monopoly,  which  are  re- 
flected in  inflated  capitalization  as  distinguished 
from  actual  investments  of  capital.  We  have  also 
to  consider  that  portion  of  the  income  of  society 
which  goes  to  the  owners  of  natural  opportunities 
under  the  name  of  rent.  Again,  we  do  not  find 
from  experience  that  we  live  in  a  kind  of  a  world  in 
which  evils  cure  themselves.  They  are  cured  by 
intelligent  and  well-directed  effort  on  the  part  of 
human  beings. 

By  others  a  sufficient  remedy  is  found  in  poten- 

*  This  will  be  done  elsewhere  in  the  author's  work  on 
The  Distribution  of  Wealth. 

250 


EVILS    AND    REMEDIES 

tial  and  residual  competition.  It  is  not  altogether 
clear  what  it  is  hoped  that  potential  competition — 
namely,  competition  which  may  come  into  exist- 
ence; and  residual  competition,  namely,  survivals 
of  competition  in  centralized  business — will  accom- 
plish. Where  we  have  to  do  with  real  monopolies, 
competition  in  its  true  sense  is  non-existent,  and 
the  causes  which  produce  monopoly  are  relied  on 
to  continue  that  monopoly.  No  evidence  has  been 
adduced  of  the  sufficient  action  of  potential  com- 
petition in  the  case  of  monopoly.  The  spirit  of 
monopoly,  even  when  it  fears  attack,  is  expressed 
in  the  injunction,  "  make  hay  while  the  sun  shines." 
Take  as  an  illustration  the  case  of  the  gas-works 
in  Baltimore.  There  have  been  five  or  six  attacks 
upon  these  works  by  new  companies.  It  might  be 
supposed  that  these  potential  raids — for  that  they 
are,  rather  than  potential  competition — would  have 
kept  the  gas-works  in  adequate  check,  and  would 
have  given  the  people  of  Baltimore  cheap  and  good 
gas.  Such  has  not  been  the  case,  however.  At  the 
present  moment  it  is  safe  to  say  that  it  is  not  upon 
the  excellence  and  cheapness  of  its  product  that 
the  existing  gas  company  relies  to  prevent  a  raid 
so  much  as  it  is  upon  the  legislative  checks  stand- 
ing in  the  way  of  such  a  raid,  and  also  upon  the 
growing  popular  perception  of  the  futility  of  at- 
tempted competition  in  the  gas  business.  Numer- 
ous illustrations  are  also  afforded  by  the  railway 
history  of  the  United  States.  The  potential  exist- 
ence of  the  West  Shore  and  Nickel  Plate  railways 

251 


MONOPOLIES    AND    TRUSTS 

was  not  sufficient  to  keep  down  the  earnings  of  the 
New  York  Central  &  Hudson  River  and  Lake  Shore 
&  Michigan  Southern  railways  to  the  level  of  com- 
petitive business ;  nor  was  the  potential  existence 
of  these  railways  sufficient  to  secure  an  altogether 
satisfactory  treatment  for  those  who  were  obliged 
to  make  use  of  the  service  of  the  old  lines. 

But  there  are  cases  in  which  .we  can  rely  upon  a 
combination  of  residual  and  potential  competition, 
and  possibly  when  the  arguments  of  Professor  John 
B.  Clark,  the  most  scholarly  advocate  of  potential 
competition,  are  analyzed,  they  do  not  mean  any 
more  than  the  present  writer  is  prepared  to  admit.* 
In  the  case  of  a  business  which  is  not  a  natural  mo- 
nopoly we  may  have  a  large  combination  control- 
ling a  great  part  of  the  production  of  some  article. 
Professor  John  Graham  Brooks,  at  the  Chicago 
Trust  Conference,  described  the  English  bedstead 
trust,  which  manufactures  the  larger  part  of  the 
bedsteads  used  in  England,  although  it  appeared 
that  some  residual  competition  is  left  in  England, 
and  that  the  trust  is  still  exposed  to  international 
competition.  Now  if  we  have  combinations  of  this 
sort,  which  have  been  formed  without  any  favors, 
and  under  full  and  free  competition,  as  the  result  of 
excellence  of  work  and  low  prices,  potential  and 
residual  competition  is  sufficient.  The  old  enter- 
prises which  still  survive  will  quickly  enlarge  their 

*  The  theories  of  Professor  Clark  will  receive  fuller  treat- 
ment in  that  portion  of  the  present  work  dealing  with  "  Com- 
petition," as  well  as  elsewhere. 

252 


EVILS    AND    REMEDIES 

production  if  the  combination  furnishes  inferior  or 
high-priced  work,  and  there  is  also  a  possibility  of 
new  enterprises  availing  themselves  of  openings 
made  by  the  failure  on  the  part  of  the  combination 
to  maintain  excellence  and  cheapness. 

This  suggests  another  point  of  which  a  good  deal 
has  been  made — namely,  the  accumulation  of  new 
capital.*  The  accumulation  of  capital  is  going  for- 
ward apace,  and  outside  the  proper  and  natural 
field  of  monopoly  it  is  a  tremendous  force  making 
for  competition  when  open  opportunities  are  main- 
tained. In  the  case  of  true  monopolies,  however, 
new  accumulations  of  capital  beat  in  vain  against 
their  doors,  and,  driven  off,  return  to  the  competi- 
tive field,  only  to  reduce  still  further  the  gains  in 
competitive  industries. 

Another  line  of  suggestion  is  this:  Let  us  await 
fuller  knowledge  and  do  nothing  at  present.  This 
sounds  safe,  and  at  first  appears  to  be  scholarly. 
We  are  told  that  we  should  first  know  all  that  it 
is  possible  to  know  about  the  great  trusts,  and  that 
when  we  have  the  details  spread  before  us,  then 
we  may  act.  But  when  is  that  time  coming?  It 
is  a  general  truth  that  we  have  fulness  of  knowl- 
edge only  about  dead  institutions.    But  social  forces 

*  Professor  Franklin  H.  Giddings,  of  Columbia  Univer- 
sity, brought  this  point  forward  forcefully  in  the  work 
which  he  wrote  jointly  with  Professor  J.  B.  Clark,  entitled 
Modern  Distributive  Processes,  and  it  was  also  strongly  em- 
phasized by  Mr.  Bourke  Cockran  at  the  Chicago  Trust 
Conference. 

253 


MONOPOLIES    AND    TRUSTS 

operate  continuously,  and  while  we  are  doing  noth- 
ing, they  are  producing  their  results.  To  do  noth- 
ing means  simply  to  let  the  immense  blind  social 
forces  now  at  work  operate  without  interruption 
and  bind  us  more  securely. 

It  has  been  one  of  the  chief  faults  of  English 
economics  that,  so  far  as  public  action  is  concerned, 
it  has  insisted  upon  a  policy  of  waiting.  It  has  told 
us  that  we  must  do  nothing  until  harm  has  come 
from  private  action.  The  London  water  supply  in 
private  hands  shows  the  result  of  this  policy.  For 
more  than  two  generations  it  has  been  generally  ad- 
mitted that  private  control  of  this  vital  public  need 
is  a  great  evil,  but  the  evil  has  become  so  deeply 
and  firmly  rooted  that,  until  the  present  time,  it  has 
not  been  possible  to  abolish  it.  A  still  better  illus- 
tration is  afforded  by  the  concentration  of  wealth 
in  England,  which  is  traceable  very  largely  to  causes 
that  were  in  operation  during  the  reign  of  George 
III.  During  the  past  fifty  years  England  has  been 
trying  to  remedy  the  evils  which  have  resulted  from 
mistakes  made  during  the  preceding  fifty  years,  but 
she  has  as  yet  by  no  means  succeeded.*  Similarly, 
a  very  brief  period,  beginning  with  the  Civil  War — a 
period  probably  not  exceeding  twenty-five  years — 
is  very  largely  responsible  for  the  excessive  central- 
ization of  wealth  in  this  country,  f  and  for  many 

*  See  Spahr's  Distribution  of  Wealth,  part  i.,  chapter  i. 
t  The  author  has  in  mind  among  other  things  the  char- 
acter of  taxation,  the  financial   methods  of  railway  con- 

254 


EVILS    AND    REMEDIES 

evils  which  it  will  take  more  than  one  generation 
to  overcome.  It  is  the  office  of  science  to  foresee 
evils  and  to  prevent  them,  as  well  as  to  remedy 
them  when  they  have  occurred. 

On  the  other  hand,  we  have  already  seen  in  this 
country  the  effect  of  that  reckless  action  which 
results  in  evil.  What  we  must  do,  then,  is  to  go 
ahead — and  go  ahead  as  quickly  as  possible — but 
by  all  means  in  the  right  direction.* 

Turning  now  to  the  remedies  which  the  author 
would  propose,  mention  may  first  of  all  be  made  of 
education.  We  must  have  both  general  education 
and  special  education:  general  education,  to  fit  men 
better  to  fight  the  battle  of  life;  and  special  edu- 
cation in  economics,  giving  instruction  concerning 

struction  and  management,  and  the  issues  of  depreciated 
paper  currency. 

*  Professor  Marshall  in  one  place  uses  words  which  show 
an  appreciation  of  the  importance  of  quick  action  in  the 
solution  of  economic  problems,  for  in  the  closing  paragraph 
of  his  address  on  "  Some  of  the  Aspects  of  Competition," 
delivered  before  the  Economic  Science  and  Statistics  Sec- 
tion of  the  British  Association  at  Leeds  in  1890 — we  find 
the  following  timely  utterance :  "  Every  year  economic  prob- 
lems become  more  complex;  every  year  the  necessity  of 
studying  them  from  many  different  points  of  view  and  in 
many  different  connections  becomes  more  urgent.  Every 
year  it  is  more  manifest  that  we  need  to  have  more  knowl- 
edge, and  to  get  it  soon  in  order  to  escape,  on  the  one 
hand,  from  the  cruelty  and  waste  of  irresponsible  competi- 
tion and  the  licentious  use  of  wealth,  and  on  the  other 
from  the  tyranny  and  the  spiritual  death  of  an  iron-bound 
socialism." 

255 


MONOPOLIES    AND    TRUSTS 

the   nature   of   monopolies  and   the  problems  to 
which  they  give  rise. 

We  take  up  next  the  problem  of  natural  monop- 
olies, those  admitted  to  be  such  because  of  prop- 
erties inherent  in  the  business.  The  author  has 
in  mind  especially  railways,  telegraph  lines,  tele- 
phones, lighting-works,  water-works,  etc.  What  are 
the  objects  to  be  accomplished  by  society  in  its  re- 
lation to  these  businesses,  which  are  admitted  to 
be  monopolies  ?  As  they  are  monopolies,  the  con- 
trol which  competition  exercises  over  other  busi- 
nesses is  in  their  case  absent.  The  problem,  then, 
is  the  abolition  of  favoritism:  favoritism  with  re- 
spect to  the  income  of  this  kind  of  property  must 
be  abolished — abolished  so  that  surplus  value  may 
not  fall  into  private  pockets.  Those  who  engage 
in  businesses  of  this  kind  must,  with  respect  to 
returns  on  capital  and  enterprise,  be  placed  on 
the  same  footing  with  others.  They  must  be  con- 
tent with  normal  returns  upon  actual  investment. 
Moreover,  it  must  be  borne  in  mind  that  not  all 
capital  in  the  industrial  field  can  count  on  any  re- 
turns whatever.  It  is  only  capital  invested  with 
normal  prudence  and  skill  which  may  count  upon 
normal  returns.  If  those  engaged  in  these  busi- 
nesses are  not  placed  on  the  same  footing  with 
others  they  constitute  privileged  classes  of  monop- 
olists. Franchises  gotten  for  nothing  and  sold  for 
millions  of  dollars  are  simply  one  of  many  evidences 
of  the  existence  of  these  privileged  classes.  If  pri- 
vate monopoly  is  to  be  allowed  to  continue  in  these 

256 


EVILS    AND    REMEDIES 

fields  some  method  must  be  devised,  through  tax- 
ation, through  regulation  of  franchise  grants,  and 
otherwise,  which  will  place  on  a  footing  of  equality 
those  engaged  in  these  monopolistic  businesses 
and  those  engaged  in  competitive  businesses.  No 
regulation  of  this  sort  has  as  yet  been  devised, 
but  many  things  suggest  themselves.  It  has  been 
hoped  that  in  the  case  of  street-railways  the  sale 
of  franchises  would  eliminate  the  private  receipt 
of  surplus  value ;  but  where  it  has  been  attempted 
in  New  York  State  it  has  not  cured  this  evil.  By 
way  of  reduction  and  regulation  of  rates,  more  can 
be  accomplished  than  has  hitherto  been  effected. 
But  to  both  reduction  and  regulation  of  rates,  hav- 
ing in  view  the  elimination  of  surplus  value,  there 
has  been  strenuous  resistance,  and  the  cases  which 
have  been  fought  out  in  the  courts  have  not  thus 
far  given  much  promise  of  relief. 

It  must  be  brought  about  that  no  favoritism  shall 
be  shown  by  these  monopolies  in  their  treatment 
of  others.  This  is  one  object  of  the  Interstate  Com- 
merce Commission.  In  this  case,  too,  the  results 
thus  far  achieved  are  not  reassuring,  and  the  last 
report  of  the  Commission  bears  a  pessimistic  tone.* 

*  The  following  is  a  quotation  from  pages  5  and  6  of  this 
report — the  twelfth — bearing  date  January  9,  1899 : 

"In  previous  communications  to  the  Congress,  especially  those 
of  more  recent  date,  attention  has  been  called  to  the  vital  respects 
in  which  the  act  to  regulate  commerce  has  proved  defective  and  in- 
adequate. Some  of  its  provisions  were  early  seen  to  be  imperfect, 
while  others  were  so  uncertain  or  ambiguous  as  to  give  rise  to  pro- 
R  257 


MONOPOLIES    AND    TRUSTS 

We  have,  however,  simply  the  two  alternatives 
— on  the  one  hand,  public  control  of  private  prop- 
erty ;  and,  on  the  other,  public  property  with  public 
management,  the  latter  alternative  necessarily  car- 
rying with  it  social  control. 

Is  the  first  plan — namely,  that  of  public  con- 
trol of  private  corporations — possible  in  general,  and 
especially  is  it  possible  in  a  democratic  society  like 
ours?  The  first  difficulty  which  suggests  itself  is 
this — the  attempt  to  secure  a  union  of  antagonistic 
principles.     Private  property  is  in  its  nature  exclu- 

tracted  litigation,  resulting  finally  in  authoritative  construction  by 
the  Supreme  Court  of  the  United  States.  The  Commission  has 
taken  much  pains  to  explain  the  various  questions  that  have  thus 
been  decided  and  the  effect  of  these  adjudications  in  defeating  the 
purposes  of  the  act.  To  state  that  the  law  in  its  present  condition 
cannot  be  enforced  is  only  to  repeat  what  has  already  been  said. 
Until  further  and  important  legislation  is  enacted  the  best  efforts  at 
regulation  must  be  feeble  and  disappointing. 

"  This  subject  was  fully  discussed  in  our  last  annual  report,  and 
we  are  unable  to  add  anything  to  the  presentation  then  made.  In 
that  and  previous  reports  we  have  not  only  set  forth  in  general 
terms  the  necessity  for  amending  the  law,  but  have  formulated  and 
proposed  the  specific  amendments  which  appear  to  us  positively  es- 
sential. With  the  renewal  of  these  recommendations  no  duty  of 
the  Commission  in  this  regard  remains  undischarged. 

"  Meanwhile  the  situation  has  become  intolerable,  both  from  the 
stand-point  of  the  public  and  the  carriers.  Tariffs  are  disregarded, 
discriminations  constantly  occur,  the  price  at  which  transportation 
can  be  obtained  is  fluctuating  and  uncertain.  Railroad  managers 
are  distrustful  of  each  other,  and  shippers  all  the  while  in  doubt  as 
to  the  rates  secured  by  their  competitors.  The  volume  of  traffic  is 
so  unusual  as  to  frequently  exceed  the  capacity  of  equipment,  yet 
the  contest  for  tonnage  seems  never  relaxed.  Enormous  sums  are 
spent  in  purchasing  business  and  secret  rates  accorded  far  below  the 

258 


EVILS    AND    REMEDIES 

sive,  and  the  proprietor's  control  of  his  property 
under  general  regulations  is  one  of  its  incidents. 
The  individual  and  social  benefits  of  private  prop- 
erty come  largely  as  the  result  of  a  free  hand  in  its 
management.  But  in  the  public  control  of  private 
property  we  retain  private  property,  and  yet  take 
away  from  it  that  measure  of  control  which  is 
one  of  its  natural  incidents.  It  is  a  very  serious 
question  whether  these  two  antagonistic  principles 
can  thus  be  reconciled.  One  inevitable  result  is 
a  struggle  of  interests,  with  consequent  political 
corruption  and  class  arrayed  against  class.     Those 

standard  of  published  charges.  The  general  public  gets  little  bene- 
fit from  these  reductions,  for  concessions  are  mainly  confined  to  the 
heavier  shippers.  All  this  augments  the  advantages  of  large  cap- 
ital and  tends  to  the  injury,  and  often  to  the  ruin,  of  smaller  dealers. 
These  are  not  only  matters  of  gravest  consequence  to  the  business 
welfare  of  the  country,  but  they  concern  in  no  less  degree  the  higher 
interests  of  public  morality. 

"  The  conditions  now  widely  prevailing  cannot  be  better  illus- 
trated than  by  reference  to  investigations  of  the  Commission  during 
the  last  year,  an  account  of  which  appears  in  the  following  pages. 
These  are  not  isolated  and  exceptional  cases  ;  their  counterpart  may 
be  found  in  many  localities.  The  facts  thus  brought  to  light  carry 
their  own  comment,  and  nothing  said  by  us  can  add  to  their  signif- 
icance." 

In  this  connection  a  personal  experience  may  not  be 
without  interest.  The  author  was  a  member  of  a  society 
in  which  there  at  one  time  arose  a  discussion  as  to  whether 
or  not  rebates  were  still  paid  to  shippers  by  the  railways. 
After  the  debate  had  continued  for  some  time,  one  gentle- 
man present — a  railway  official — quietly  remarked  that  he 
had  spent  the  day  in  paying  rebates ! 

259 


MONOPOLIES    AND    TRUSTS 

whose  private  property  it  is  attempted  to  control 
are  bound  to  resist  the  attempted  control  which, 
however  just  it  may  be,  they  will  regard  as  unjust ; 
and  to  resist  it  means  to  enter  politics  in  order  to 
control  those  agencies  which  are  designed  to  con- 
trol them.  In  this  way  we  have  the  most  power- 
ful classes  using  politics  to  promote  their  private 
ends. 

The  problem  which  is  thus  presented  is  difficult 
anywhere ;  yet  in  a  country  like  Germany,  with  its 
strong  and  highly  trained  governing  class,  it  can  be 
understood  how  a  moderate  measure  of  success  can 
be  attained  in  this  line ;  but  how  is  it  possible  in  a 
country  like  the  United  States? 

Property  gives  strength.  Have  we,  or  can  we 
have,  a  class  sufficiently  strong  to  control  those 
owners  of  immense  property  who  are  engaged  in 
monopolistic  undertakings  ?  It  is  frequently  ob- 
served that  those  who  are  to  be  controlled  exhibit 
a  strength  superior  to  that  of  those  who  are  to  con- 
trol them.  How  helpless  against  a  combination  of 
railways  is  the  city  of  twenty-five  thousand  inhabit- 
ants when  struggling  to  do  such  a  seemingly  small 
and  entirely  right  thing  as  to  provide  gates  at  grade 
railway  crossings.  The  writer  has  one  case  in  mind. 
The  very  modest  efforts  of  the  city  were  met  with 
the  threat  that  the  railway  shops  would  be  removed 
to  a  village  some  thirty  miles  distant  and  in  an 
adjoining  state.  Even  the  city  of  Chicago  has  had 
a  mighty  struggle,  continuing  for  years,  in  its  efforts 
to  protect  life  at  railway  crossings.    At  one  time 

260 


EVILS    AND    REMEDIES 

it  was  proposed  by  the  railways  to  leave  Chicago 
and  build  another  city  in  adjacent  territory  to  escape 
what  was  regarded  by  the  railways  as  oppression  on 
the  part  of  the  city.  A  former  editor  of  the  North 
American  Review  even  suggested  to  the  present 
writer  that  he  prepare  an  article  in  regard  to  what 
would  be  the  outcome  of  such  action  on  the  part  of 
the  railways. 

Apart  from  the  question  of  the  simple  difference 
in  economic  strength  as  between  the  contesting 
parties,  we  have  the  question  of  skill  on  the  two 
sides.  Now  skill  is  most  naturally  acquired  in  the 
management  of  property.  It  is  almost  inevitable, 
then,  that  those  who  are  to  be  controlled  should  be 
in  possession  of  the  superior  skill.  Contrast  in  this 
particular  the  helplessness  of  the  ordinary  municipal 
council,  even  if  comprised  of  entirely  honest  men — 
and  this  is  granting  a  great  deal — with  the  trained 
skill  exhibited  by  the  combination  of  street-railway 
interests  with  which  it  may  have  dealings. 

There  is,  indeed,  a  possibility  that  we  may  have 
a  growth  of  purity  in  our  political  life,  and  there  is 
every  reason  to  hope  that  such  may  be  the  case. 
There  is  also  going  forward  a  growth  in  enlighten- 
ment, and  it  is  doubtless  conceivable  that  we  may 
develop  in  the  end  a  class  sufficiently  wise  and 
strong  to  control  powerful  monopolies  owning  a 
third  or  a  fourth  of  all  the  wealth  of  the  country. 
It  is  possible  also  that  a  union  of  local,  state,  and 
national  agencies  may  give  us  a  combination  suffi- 
ciently strong  to  hold  in  check  these  vast  aggrega- 

261 


MONOPOLIES    AND    TRUSTS 

tions  of  men  and  capital.  A  prudent  man  must 
judge  for  himself  in  regard  to  the  probability  of 
such  an  evolution. 

Public  ownership  with  public  management  rend- 
ers control  easy,  because  it  is  in  the  very  nature  of 
public  property  that  it  should  be  publicly  con- 
trolled. Can  we,  however,  find  a  class  of  office-hold- 
ers wise  enough  and  good  enough  to  manage  the 
monopolistic  businesses  of  modern  times  ?  About 
this  there  can  be  no  doubt.  There  are  men  wise 
enough  to  manage  these  businesses;  these  men  are 
now  very  largely  employed  in  such  management, 
and  they  could  be  retained  under  public  ownership 
and  management.  There  is  also  sufficient  virtue  in 
the  American  people ;  and  of  this  we  have  abundant 
evidence.  Quite  another  question,  however,  is  this 
one :  Can  we  trust  to  the  wisdom  of  the  people  to 
select  and  to  give  continuous  employment  to  this 
class  of  men  who  are  sufficiently  wise  and  strong  for 
the  management  of  these  businesses?  We  come, 
then,  to  the  question  as  to  what  developments  of 
the  civil  service  are  possible  and  probable. 

We  frequently  notice  that  public  work  improves 
as  its  importance  increases,  and  as  public  employ- 
ment rises  in  dignity  it  will  naturally  attract  a  su- 
perior class  of  men.  A  separation  of  public  and 
private  interests  also — such  as  would  be  brought 
about  by  the  public  ownership  of  natural  monopo- 
lies— would  array  on  the  side  of  good  government 
strong  classes  who  are  now  acting  against  good  gov- 
ernment. 

262 


EVILS    AND    REMEDIES 

On  the  other  hand,  we  observe  that  when  great 
waves  of  political  passion  arise,  such  as  the  money- 
question  produced  in  1896,  even  friends  of  civil 
service  reform  have  justified  the  partisan  use  of 
the  civil  service.  We  observe  also  that  the  plat- 
form of  a  great  political  party  declares  for  a  large 
increase  in  governmental  activity,  and  at  the  same 
time  expresses  little  sympathy  with  civil  service  re- 
form. But  other  platforms  which  have  gone  still 
further  in  their  demands  for  public  activity  have, 
as  a  rule,  coupled  these  demands  with  a  further  de- 
mand for  a  stable  and  improved  civil  service. 

All  this  carries  with  it  as  a  part  of  the  solution  of 
our  problem  a  new  way  of  looking  at  government. 
The  evolution  of  society  has  made  the  old  idea  of 
civil  government  entirely  inapplicable  to  present 
conditions.  As  our  life  is  complex,  our  govern- 
ment must  be  elaborate.  This  is  in  the  very  nat- 
ure of  things,  and  cannot  be  avoided.  The  devel- 
opment of  control  as  opposed  to  public  ownership 
does  not  simplify,  but  rather  complicates  govern- 
ment, and  renders  it  not  easier,  but  more  difficult, 
than  direct  public  ownership  and  management  of 
monopolistic  businesses. 

Whatever  we  do,  we  must  recognize  that  social 
evolution  has  brought  us  problems  which  in  their 
very  nature  are  difficult.  The  question  is,  Which 
method  in  the  long  run  offers  the  least  difficulty  and 
promises  the  most  beneficial  results — public  control 
of  private  property  in  natural  monopolies  of  the 
kind  under  consideration,  or  public  ownership  and 

263 


MONOPOLIES    AND    TRUSTS 

management  of  such  natural  monopolies?  The 
evidence  of  a  rapid  shifting  of  public  opinion  mani- 
fested at  the  Chicago  Trust  Conference  was  most 
remarkable,  and  was  to  the  author  a  great  surprise. 
When,  less  than  fifteen  years  ago,  he  began  urg- 
ing the  superior  advantages  of  public  ownership 
and  management  of  these  monopolies,  he  found 
comparatively  little  sympathy.  During  the  period 
that  has  intervened,  however,  there  has  been  such  a 
change  in  sentiment  on  the  part  of  others — coup- 
led, perhaps,  with  a  slight  lessening  of  ardor  on  his 
own  part — that  at  Chicago  he  found  himself  stand- 
ing among  those  who  would  be  regarded  as  the 
conservative  element,  while  those  who  have  figured 
as  opponents  of  governmental  activity  were  pre- 
dicting that  we  would  have  government  ownership 
of  railways  sooner  than  the  writer  can  anticipate. 

In  the  case  of  natural  monopolies  of  the  first 
sub-class,  where  we  have  a  limited  supply  of  raw 
material,  such  as  the  natural  treasures  of  the  earth, 
we  can  aim  to  secure  as  a  goal  government  owner- 
ship, even  if  we  do  not  have  government  operation. 
In  the  case  of  those  intricate  industries  in  which  the 
supply  of  raw  material  is  narrowly  limited,  it  may  be 
that  government  ownership  with  private  operation 
will  be  sufficient,  and  even  socially  preferable.* 

A  third  remedy  lies  in  the  line  of  regulation  of 
bequests  and  inheritances  by  taxation  and  other- 

*  This  is  discussed  at  length  in  another  part  of  the  pres- 
ent work  on  The  Distribution  of  Wealth. 

264 


EVILS    AND    REMEDIES 

wise,  in  order  that  in  this  way  vast  fortunes  may 
gradually  be  broken  up  and  wealth  more  widely 
diffused.  Thus  surplus  value  which  has  been  ac- 
cumulated by  monopoly  will  in  part  be  absorbed 
by  society  for  social  purposes,  and  will  in  part  be 
widely  scattered.  What  is  here  recommended  is 
simply  in  the  line  of  what  is  already  going  forward 
throughout  the  civilized  world.  For  example,  in 
the  states  of  Illinois  and  New  York,  as  well  as  in 
some  of  the  Swiss  cantons  and  the  Australasian 
provinces,  great  estates  inherited  by  distant  rela- 
tives or  strangers  in  blood  are  taxed  as  high  as 
20  per  cent.*  The  most  conservative  jurists  f  are, 
in  addition,  recommending  that  the  laws  which 
tend  to  prevent  the  building  up  of  large  family 
estates  be  strengthened,  and  that  the  laws  be  ren- 
dered more  favorable  to  the  wide  diffusion  of  prop- 
erty among  friends  and  relatives.  Even  conserva- 
tive legislation  of  this  kind,  operating  continuously 
from  generation  to  generation,  produces  a  marked 
effect,  as  we  may  see  in  the  case  of  France,  where 
the  laws  compelling  a  very  nearly  equal  division 
of  property  among  children  have  produced  during 
the  present  century  a  wide  diffusion  of  wealth. 

*  In  the  case  of  Illinois  and  New  York  the  federal  tax  is 
added  to  the  state  tax  to  make  the  rate  of  taxation  men- 
tioned. 

t  See  "  Property:  Its  Rights  and  Duties  in  our  Legal  and 
Social  System  " — an  address  delivered  before  the  New  York 
State  Bar  Association,  January  15,  1895,  by  the  Hon.  John 
F.  Dillon,  LL.D. 

265 


MONOPOLIES    AND    TRUSTS 

This  subject  is  discussed  elsewhere  in  the  au- 
thor's general  work.  At  the  present  time  it  is  only- 
necessary  to  call  attention  again  to  the  connection 
of  great  fortunes  with  monopoly.  It  has  been  said 
that  where  supply  is  so  restricted  that  a  combina- 
tion of  men  acting  as  a  unit  can  secure  the  entire 
source  of  supply,  we  have  the  conditions  of  mo- 
nopoly. But  this  condition  becomes  increasingly 
possible  of  realization  with  the  growth  of  large 
fortunes.  When  we  have  a  great  many  men  with 
fortunes  running  from  five  to  two  hundred  mill- 
ions, it  is  possible  to  secure  control  of  the  source 
of  supply  even  when  this  is  relatively  very  large. 
Originally — that  is,  if  the  problem  had  been  taken 
hold  of  in  time — it  might  not  have  been  necessary 
to  regulate  bequests  and  inheritances  through  tax- 
ation and  otherwise,  in  order  to  prevent  monopoly. 
But  things  have  gone  so  far  now  that  we  have  to 
work  along  this  line  also. 

As  a  fourth  suggestion,  there  is  the  aid  to  be  de- 
rived from  tariff  reform,  which  has  already  received 
mention  in  a  different  connection.  So  far  as  mo- 
nopoly is  due  to  the  tariff,  the  remedy  is  very- 
simple.  Remove  the  tariff  from  imported  commod- 
ities thus  monopolized.  To  confine  ourselves  to 
a  single  illustration,  the  reader  may  be  reminded 
that,  according  to  the  statement  of  its  president, 
the  sugar  "  trust "  has  been  aided  by  the  tariff. 

In  the  fifth  place,  the  reform  which  is  suggested 
is  a  reform  of  the  patent  law  to  cover  all  cases  in 
which  patents  are  made  the  basis  of  objectionable 

266 


EVILS    AND    REMEDIES 

monopolies.  Various  commissioners  of  patents 
have  suggested  reforms.  One  is  for  the  govern- 
ment to  reserve  the  right  to  purchase  any  patent 
at  an  appraised  valuation.  So,  if  the  Bell  Tele- 
phone people,  for  example,  have  a  patent  which  is 
objectionable,  the  right  to  purchase  it  at  a  price 
fixed  by  a  commission  and  then  to  throw  it  open 
to  the  public  would  be  reserved.  A  second  remedy 
is  to  grant  patents  only  on  condition  that  the  use 
of  the  patent  shall  be  free  to  any  one  on  payment 
to  its  owner  of  a  reasonable  royalty,  the  amount 
of  which  could  be  determined  by  a  board  in  ac- 
cordance with  carefully  elaborated  principles.  An- 
other is  to  put  a  tax,  increasing  each  year,  on  the 
use  of  patents,  and  to  let  those  lapse  on  which  the 
tax  is  not  paid.  Another  is  to  provide  forfeiture 
for  the  non-use  of  patents.  These  constitute  in 
the  main  the  remedies  which  have  been  suggested. 
Some  of  them  have  already  been  tried  to  a  greater 
or  less  extent  in  different  countries  of  the  civilized 
world.  So  far  as  safe-guarding  the  interests  of  so- 
ciety is  concerned,  the  two  best  patent  laws  are 
those  in  England  and  Germany.  In  our  own  coun- 
try we  have  some  excellent  features,  but  we  have 
not  done  what  we  could  do  to  prevent  monopoly. 

In  the  sixth  place,  the  reform  of  the  law  of  pri- 
vate corporations  along  approved  lines  may  be 
urged.  This  suggests  the  establishment  of  bureaus 
of  corporations  in  the  various  states ;  and  in  order 
to  prevent  one  state  from  preying  on  another  un- 
der the  shelter  of  interstate  comity  and  constitu- 

267 


MONOPOLIES    AND    TRUSTS 

tional  guarantees,  it  is  desirable  to  have  a  federal 
bureau  of  private  corporations.  At  the  present 
time,  as  has  been  intimated,  one  state,  for  the  sake 
of  corporation  fees  and  taxes,  may,  by  its  loose 
legislation,  induce  men  to  form  corporations  which, 
though  formed  in  a  manner  that  is  socially  in- 
jurious and  though  lacking  all  proper  supervision, 
have  nevertheless  the  right  as  a  matter  of  fact  to 
do  business  throughout  the  country.  New  Jersey 
has  hitherto  been  pre-eminently  the  home  of  the 
so-called  trust  formations,  but  now  Delaware  is 
avowedly  outbidding  New  Jersey  in  the  attempt 
to  secure  incorporations  under  terms  which  will  in- 
crease her  revenues,  but  which  will  remove  all  effec- 
tive control  over  private  corporations.  It  seemed 
to  be  a  very  general  opinion  at  the  Trust  Con- 
ference in  Chicago — and,  in  fact,  one  from  which 
there  was  only  slight  dissent — that  the  time  has 
come  for  the  formation  of  some  kind  of  federal 
bureau  to  exercise  general  supervision  over  private 
corporations.  Perhaps  the  best  model  that  can  be 
suggested  is  the  office  of  the  Controller  of  the  Cur- 
rency, which  exercises  supervision  over  national 
banks ;  and  the  aim  should  be  to  secure  the  same 
sort  of  effective  control  over  all  private  corpora- 
tions engaged  in  interstate  commerce.  With  state 
and  federal  bureaus  acting  together,  it  should  be 
possible  to  exercise  the  desired  control  over  private 
corporations,  whether  engaged  in  state  business  or 
in  business  involving  interstate  commerce.  The 
sole  purpose  of  this  control  should  be  honesty  and 

268 


EVILS    AND    REMEDIES 

individual  responsibility;  and  to  secure  this,  com- 
plete publicity  is  necessary. 

This  is  not  the  place  to  go  into  this  subject  in 
detail,  for  a  treatise  on  private  corporations  and 
their  reform  would,  if  at  all  adequate,  fill  a  much 
larger  volume  than  the  present  one.  This  discus- 
sion is  designed  simply  to  show  the  general  direo 
tion  of  the  desired  movement  for  supervision. 
The  proposal  is  to  bring  it  about  that  some  one 
shall  be  accountable  for  every  act  of  a  private 
corporation,  and  that  measures  shall  be  devised 
for  fastening  individual  responsibility  upon  him. 
And  this  is  not  by  any  means  Utopian.  It  is  meas- 
urably secured  in  France,  Germany,  and  England, 
and  also  in  the  case  of  our  own  national  banks. 
Let  us  consider,  for  instance,  the  issue  of  a  pro- 
spectus by  a  private  corporation  under  our  pro- 
posed plan  of  regulation.  This  prospectus  should 
be  signed,  and  those  signing  it  should  be  held  re- 
sponsible, both  to  investors  and  to  the  general  public, 
for  the  accuracy  of  its  statements.  It  should  be  pos- 
sible for  any  one  injured  to  recover  damages,  and 
serious  misrepresentations  should  be  a  criminal  of- 
fence. It  should  be  possible  for  any  shareholder  to 
enforce  his  rights.  This  would  add  to  the  responsi- 
bility of  the  directors,  and  if  it  should  diminish  the 
number  of  directorships  held  by  one  person — and 
this  has  been  suggested — so  much  the  better.  The 
director  should  be  a  man  who  directs — not  a  blind 
man  leading  other  blind  men  into  the  ditch. 

Especially  should  no  misrepresentation  be  per- 
269 


MONOPOLIES    AND    TRUSTS 

mitted  in  regard  to  capital  invested.  The  provis- 
ions of  the  National  Bank  Act,  in  so  far  as  they 
have  to  do  with  over-capitalization,  may  be  some- 
what too  strict  to  be  applicable  to  general  manu- 
facturing and  commercial  business  ;  but  even  with 
them,  discretion  in  the  matter  of  over-capitalization 
should  be  confined  to  very  narrow  limits.  It  cannot 
always  be  told  in  advance  how  much  capital  is  going 
to  be  needed,  and  it  may  be  advisable  to  permit  the 
issue  of  shares  half  paid  up,  with  liability  for  the  full 
nominal  amount  of  the  shares ;  but  it  should  be 
clearly  and  explicitly  stated  exactly  how  much  is  paid 
in,  so  that  no  one  may  be  deceived  on  this  point.  The 
purpose  of  a  provision  against  over-capitalization  is 
to  prevent  deception  of  investors  and  creditors,  and 
also  to  bring  it  about  that  in  case  it  may  be  desirable 
for  the  public  to  regulate  or  to  purchase  a  business, 
an  excessive  valuation  may  not  be  successfully  set 
up  as  a  basis  for  permissible  charges  in  the  case  of 
regulation  or  as  a  basis  of  negotiations  in  the  case 
of  purchase.  What  is  here  urged  in  regard  to  a  fed- 
eral bureau  for  supervision  of  private  corporations 
would  probably  require  a  modification  of  the  federal 
constitution,  and  this  is  accordingly  recommended.* 
But  this  is  as  far  as  the  present  writer  is  prepared 
to  go  in  acceptance  of  the  recommendation  of  vari- 

*  As  this  is  a  matter  of  such  grave  importance,  it  is  ap- 
propriate to  reinforce  it  by  the  reprint  of  a  circular  issued  by 
a  company  which  makes  it  its  business  to  induce  people  to 
form  corporations  in  Delaware.  The  reprint  will  be  found 
in  the  Appendix. 

270 


EVILS    AND    REMEDIES 

ous  economists  that  a  commission  should  be  ap- 
pointed to  regulate  trusts.  We  must  limit  regu- 
lation of  private  business  if  private  business  is  to 
be  carried  on  successfully.  Some  of  us  can  be  regu- 
lated by  all  of  us,  but  how  everybody  is  going  to  be 
regulated  indefinitely  by  everybody  cannot  well  be 
explained.  The  attempted  regulation  becomes  bur- 
densome ;  there  is  opposition  to  it  all  along  the  line, 
and  the  struggle  is  attended  with  political  corrup- 
tion. It  is  difficult  to  escape  the  conclusion  that  if 
it  has  become  necessary  to  appoint  a  commission 
to  regulate  all  the  great  businesses  of  modern  times, 
the  present  economic  order  has  become  bankrupt. 
This  the  present  author  does  not  believe;  but  he 
maintains,  on  the  contrary,  that  the  remedies  sug- 
gested, with  a  few  others  to  be  mentioned,  would 
prove  sufficient  for  the  disease  of  monopoly.  He 
holds  that  when  movement  has  gone  far  along  the 
lines  recommended  there  will  still  be  a  wide  field 
of  free  competition  in  which  there  can  be  a  large 
and  spontaneous  play  of  social  forces.  Sir  James 
Steuart,  in  his  unduly  neglected  Political  Economy, 
.says  that  "the  principal  object  of  this  science  is  to 
employ  the  inhabitants  ...  in  such  a  manner  as 
naturally  to  create  reciprocal  relations  and  depend- 
ences between  them,  so  as  to  make  their  several 
interests  lead  them  to  supply  one  another  with 
their  reciprocal  wants."*     It  has  been  one  of  the 

*   Works  of  Sir  James  Steuart,   London  edition,  1805, 
vol.  i.,  page  3. 

271 


MONOPOLIES    AND    TRUSTS 

guiding  thoughts  in  the  present  work  to  separate 
the  field  of  monopoly  from  the  field  of  competi- 
tion, and  to  recommend  that  in  the  latter  there  be 
allowed  free  play  of  natural  and  social  forces. 

In  conclusion,  it  may  be  well  to  speak  briefly  of 
some  other  remedies  for  certain  evils  which  are 
not  peculiar  to  monopoly.  In  so  far  as  department- 
stores  and  other  sorts  of  large-scale  business  are 
concerned,  the  principal  suggestion  of  reform  is 
that  all  those  employed  by  them,  directly  or  in- 
directly, should  be  protected  from  oppressive  evils, 
by  the  elevation  of  business  to  a  higher  ethical 
plane.  Child-labor  can  be  restricted ;  the  labor  of 
young  persons  can  be  regulated  ;  the  use  of  sanitary 
appliances  can  be  enforced ;  through  the  license  sys- 
tem and  otherwise,  as  in  Massachusetts,  the  sweat- 
shop evil  can  be  greatly  abated.  This  is  altogether 
different  from  the  proposals  of  restrictive  legisla- 
tion, which  are  so  rife,  since  it  places  no  obstacles 
in  the  way  of  the  growth  of  these  businesses,  but 
gives  them  a  full  and  free  field. 

Other  reforms  may  be  effected  through  insur- 
ance. Old-age  insurance  —  taking  the  form  of 
pensions — provides  for  those  who  are  displaced  by 
industrial  readjustments.  In  various  countries  of 
the  world,  insurance  is  doing  a  large  work  in  a 
manner  which  has  been  well  described  by  Mr.  W. 
F.  Willoughby  in  his  Workingmen  s  Insurance.  By 
insurance,  provision  can  be  made  against  many  con- 
tingencies of  economic  life.  We  in  the  United 
States  have  hardly  begun  as  yet  to  realize  what 

27  a 


EVILS    AND    REMEDIES 

can  be  accomplished  by  this  means.  It  is  bound 
to  receive  a  great  extension  and  to  become  one  of 
the  problems  of  the  future. 

Finally,  it  must  be  remembered  that  the  indus- 
trial field  does  not  exhaust  all  social  activities.  We 
have  a  large  field  outside  of  the  field  of  industry, 
and  this  large  field  offers  many  opportunities  for 
individual  development,  amply  offsetting  any  loss 
which  may  result  in  the  industrial  field  from  con- 
centration of  business,  provided  only  that  this  out- 
side field  is  properly  utilized.  We  have  abundantly 
increasing  opportunities  for  development  along 
physical,  intellectual,  and  moral  lines,  including  the 
immense  educational  training-field  afforded  by  the 
rich,  expanding  life  of  modern  political  society, 
s  273 


APPENDIX* 


"The  State  of  Delaware  has  just  adopted  the  most 
favorable  of  existing  general  corporation  laws  —  one 
marking  a  forward  step  in  the  evolution  of  the  corpo- 
ration. 

"It  does  not  encourage  reckless  incorporation  nor 
permit  the  existence  of  wildcat  companies,  but  it  fur- 
nishes, at  least  expense,  ample  rights  to  stockholders,  and 
reduces  restrictions  upon  corporate  action  to  a  minimum. 

"The  enactment  is  not  the  result  (as  is  the  case  in 
most  other  States)  of  hesitating,  halting,  enacting,  amend- 
ing, and  repealing,  but  is  a  logical  and  systematic  meas- 
ure, framed  by  a  committee  of  able  lawyers  appointed  by 
the  legislature  to  examine  the  statutes  of  the  various 
States  and  to  prepare  a  bill  which  should  embody  the 
good,  and  eliminate  the  bad,  points  of  existing  laws. 

"The  law  is  based  broadly  upon  that  of  the  State  of 
New  Jersey,  and  embraces  all  of  the  beneficial  provis- 
ions and  safeguards  found  in  the  laws  of  that  State.  It 
has,  however,  in  many  respects  advanced  far  beyond 
New  Jersey,  and  makes  Delaware  a  much  more  attrac- 
tive home  for  a  business  corporation.     In  the  following 

*  This  Appendix  consists  of  a  reprint  of  a  circular  issued  by  a 
company  which  aims  to  promote  incorporation  in  Delaware. 

275 


APPENDIX 

salient  provisions  the  Delaware  and  New  Jersey  laws  are 
substantially  identical,  namely : 

"First. — Any  three  persons  may  organize  a  corpora- 
tion. 

"  Second. — It  may  engage  in  '  any  lawful  business '  ex- 
cept banking. 

"  Third. — Its  existence  may  be  perpetual  or  limited. 

"  Fourth. — It  may  purchase  and  deal  in  real  and  per- 
sonal property,  wherever  situated,  and  to  any  desired 
amount. 

"Fifth. — It  may  be  a  mortgagee  or  a  mortgagor. 

"  Sixth, — It  may  conduct  business  anywhere  in  the 
world. 

"Seventh. — Stock  may  be  issued  for  property  pur- 
chased (and,  in  Delaware,  for  services  rendered),  and,  in 
the  absence  of  fraud,  the  judgment  of  the  directors 
as  to  the  value  of  such  property  (or  services)  is  con- 
clusive. 

"Eighth. — It  may  easily  wind  up  its  affairs  and  dis- 
solve itself. 

"Ninth. — Its  authorized  capital  stock  need  not  be 
more  than  $2000,  and  only  $1000  of  this  need  be  sub- 
scribed for. 

"  Tenth. — The  amount  of  capital  stock  which  it  may 
issue  is  unlimited. 

"  Eleventh. — It  may  file  its  certificate  of  incorporation 
and  even  commence  business  before  any  sum  whatever 
is  paid  in. 

"  Twelfth. — It  may  have  different  classes  of  stocks 
with  different  privileges  or  restrictions. 

"  Thirteenth. — The  charter  may  be  easily  amended. 

"Fourteenth. — Only  one  director  need  be  a  resident  of 
Delaware. 

276 


APPENDIX 

"  Fifteenth. — Capital  stock  may  be  easily  increased  or 
decreased. 

"  Sixteenth. — The  corporation  may  be  readily  merged 
into  or  consolidated  with  other  corporations. 

"  Seventeenth. — It  may  own  and  vote  upon  the  stock  of 
other  corporations. 

"Eighteenth. — The  incorporators  may  or  may  not  limit 
the  authority  of  the  directors  as  to  the  amount  of  indebt- 
edness or  liability  the  incorporation  may  incur  at  any 
one  time. 

"The  Delaware  law  possesses  the  following  decided 
advantages : 

"(i)  The  original  fee  to  be  paid  for  incorporation  is 
small, — about  three-fourths  of  that  in  New  Jersey,  for 
instance. 

"  (2)  The  annual  tax  is  very  small, — one-half  of  that  in 
New  Jersey.  Delaware  is  a  small  State,  and  does  not 
need  a  very  large  revenue. 

"  (3)  Stockholders  and  directors  may  hold  their  meet- 
ings wherever  they  please,  and  need  never  meet  in  the 
State  of  Delaware.  (New  Jersey  stockholders  must  meet 
in  that  State.) 

"  (4)  The  original  Stock  and  Transfer  Books  (which  in 
New  Jersey  corporations  must  be  kept  in  the  State)  may 
be  kept  in  or  out  of  Delaware,  in  the  discretion  of  the 
company. 

"  (5)  The  examination  of  the  books  by  intermeddlers 
is  much  more  difficult  under  the  Delaware  law  than  under 
the  laws  of  any  other  State. 

"  (6)  The  liability  of  the  stockholder  is  absolutely  lim- 
ited when  the  stock  has  once  been  issued  for  cash,  prop- 
erty, or  services. 

"  (7)  Stock  may  be  issued  in  compensation  for  services 
277 


APPENDIX 

rendered,  and  in  the  absence  of  fraud  in  the  transaction, 
the  judgment  of  the  directors  as  to  the  value  of  such  ser- 
vices is  conclusive.  (In  New  Jersey,  authority  is  given 
to  issue  stock  for  property,  but  not  for  services.') 

*  (8)  In  certain  important  classes  of  corporations,  as, 
for  instance,  railroad,  railway,  telegraph,  telephone,  cable, 
electric-light,  steam,  heat,  power,  gas,  oil,  pipe-line,  or 
sleeping-car  companies,  the  advantage  is  still  more 
marked. 

"(9)  The  annual  report  of  a  Delaware  corporation  is 
required  to  give  no  secret  or  confidential  information. 

"(10)  The  certificate  need  not  show,  nor  need  public 
record  be  in  any  way  made  of  the  amount  of  stock  sub- 
scribed to  by  any  incorporator. 

"  This  company  is  authorized  to  act  as  the  agent  and 
trustee  of  corporations  organized  under  the  Delaware 
law.  It  will  maintain  the  principal  office  of  the  com- 
pany in  Delaware,  and  keep  an  agent  in  charge  within 
the  State.  It  is  formed  for  the  purpose  of  facilitating 
the  incorporation  of  companies  in  Delaware,  and  of  aid- 
ing them  to  comply,  at  a  minimum  expense,  with  the  re- 
quirements of  the  Delaware  law.  We  are  ready  to  aid 
and  give.full  information  to  incorporators,  corporations, 
or  their  counsel.  We  do  not  interfere  between  attorney 
and  client,  and  do  not  conduct  a  law  business. 

"  Copies  of  the  Delaware  law,  blank  forms,  and  infor- 
mation concerning  Delaware  corporations,  furnished  on 
application. 

"  All  communications  to  us  are  confidential." 
278 


INDEX 


Absolute  monopoly,  76. 
Advertising,  saved   in   large   scale 

production,  148,  167. 
Agriculture,  subject  to  tendency  to 
concentrate,  154. 
absence    of    concentration    in, 
192. 
Andrews,  E.  B.,  on  the  Standard 

Oil  Co.,  173. 
Anthracite  coal,  56. 
Anti-trust  legislation,  von  Halle  on, 
240. 
history  of,  241. 
effect  of,  243. 

B 

Ball,  Sidney,  classification  of  mo- 
nopolies, 94. 

Beef  trust,  aided  by  private  favorit- 
ism of  railways,  54. 

Bequest  and  Inheritance,  regula- 
tion of,  may  remedy  monop- 
oly evil,  264. 

Bernstein, Eduard,  on  concentration 
of  industry  in  Germany,  191. 

Blackstone,  on  meaning  of  mo- 
nopoly, 23. 

Brewing,  concentration  of,  in 
Germany,  188. 

Brooks,  on  the  English  bedstead 
trust,  252. 

Bullock,  classification  of  monopo- 
lies, 93. 

Business  unit,  increasing  in  size,  181. 

Buyers'  monopolies,  81. 


Cattle    business,    an     illustration 
of  industrial  concentration, 

153- 
Chicago    Conference    on    Trusts, 

242,  264. 
Clark,  J.  B.,  on  potential  compe- 
tition, 252. 
Classification  of  monopolies,  83, 84. 
by  Senior,  85. 
by  Lexis,  86. 

by  Patten  and  Johnson,  91. 
by  Jenks,  93. 
by  Bullock,  93. 
by  Sidney  Ball,  94. 
Class     price,     characteristic     of 

monopoly,  114. 
Cleveland,  President,  on  evils  of 

large  scale  business,  204. 
Coke,  on  meaning  of   monopoly, 

22. 
Combinations,  distinguished  from 

monopoly,  35. 
Commercial     travellers,     number 
reduced  by  large  scale  pro- 
duction, 148,  167. 
Competition,  opposed  to  monop- 
oly, 3. 
merely  sets  limits  within  which 
higgling  determines    prices, 
112. 
is  it  everywhere  self-annihilat- 
ing ?  141. 
gains    of,    as    compared   with 

monopoly,  167. 
a  permanent  social  force,  178. 


279 


INDEX 


Competitive    prices,  may   be    no 
lower  than  monopoly  price, 
118. 
Complete  monopoly,  76. 
Concentration  of  industry,  general 
causes  of,  180. 
Willoughby  on,  183. 
in  iron  production,  185. 
in  iron  and  steel,  187. 
in  brewing  in  Germany,  188. 
in  flour-milling,  189. 
in  life  insurance,  189. 
advantages  of,  146,  195,  206. 
evils  of,  203,  204. 
Concentration  of  production.    See 

Concentration  of  industry. 
Concentration  of  wealth,  caused  by 
monopoly,  137. 
evils  of,  239. 
Constitutions,  provisions  of  regard- 
ing monopoly,  28. 
Cooke,  Trade  and  Labor  Combina- 
tions, on  monopoly,  23. 
Copyrights,  45. 

Cornering  the  market,  possible  to 
large  capital,  147. 
a  point  to  be  proved,  166. 
Corporations,   reform   of    law   of, 
a  remedy  for  monopoly  evil, 
267. 
Corruption,  engendered  by  private 

monopoly,  260. 
Crude    petroleum,    limitation    of 

supply,  56. 
Cunningham,  W.,  on  the  effect  of 
the  introduction  of  machin- 
ery, 203. 
Custom  reenforcing  trade  marks, 
49. 

D 
Darcy  vs.  Alleyn,  an  early  English 

monopoly  case,  217. 
Definition  of  monopoly,  by  Senior, 

5- 
by  J.  S.  Mill,  7. 


Definition  of  monopoly, 
by  Sidgwick,  9. 
by  Johnson,  11. 
by  Hobson,  12. 
by  the  author,  14. 
by  the  makers  of  dictionaries 

17  and  18. 
by  Lord  Coke,  22. 
by  Blackstone,  23. 
by  F.  H.  Cooke,  23. 
Delaware,  lax  laws  regarding  cor- 
porations, 268,  275. 
Department  stores,  industrial  force 

creating,  157. 
De  Rousiers,  on  power  of  monop- 
oly over  raw  material,  228. 
on  the  origin  of  the  sugar  trust, 

53- 
Differential  gains,  treated  by  Senior 
as  monopoly,  7. 
in    competitive     industry     not 
monopoly  gains,  34. 
Discrimination,  256. 
by  railways,  54. 
a  cause  of  monopoly,  98. 
in  freight  rates,  170. 
in  accommodation,  175. 
Duplication,     avoided     in     large 
scale  production,  148. 

East    India   Co.,    an    early   legal 

monopoly,  52. 
Education,  a  remedy  for  monopoly, 

255- 
Elizabethan  monopolies,  24. 
English  bedstead  trust,  252. 
Etymology  of  the  word  monopoly, 

16. 


Fashion,  influence  of,  on  monopoly 

price,  136. 
Favoritism.    See  Discrimination. 


280 


INDEX 


Federal  interference,  with  corpora- 
tions, 268. 
Fiscal  monopolies,  50. 

tobacco  in  France  and  Austria, 
104. 
Fixed  charges,  less  for  large  scale 
production,  147. 
limit  to  such  advantage,  165. 
Flour-milling,  concentration  of  in- 
dustry in,  189. 
Forced  gain,  12, 113. 
Freight  rates,  smaller   for   larger 
shipments,  146. 
limits  to  such  advantage,  164. 

G 

General  welfare  monopolies,  44. 
George,  Henry,  on  result  of  fall  in 

monopoly  price,  138. 
Giddings,  F.  H.,  on  the  rationale 

of  competition,  178. 

H 

Havemeyer,  on  the  origin  of  the 

sugar  trust,  53. 
Hobson,  J.  A.,  idea  of  monopoly, 

12. 
forced  gain,  113. 
on  some  advantages  of  small 

scale  production,  199. 
Holt,  Byron  W.,  list  of  trusts,  168. 
Hume,  on  early  legal  monopolies, 

24. 

I 

Incomplete  monopolies,  77. 
Interstate  Commerce  Commission, 

257. 
Iron  production,  concentration  in, 

it>5. 


Jenks,   J.    W.,    classification    of 
monopolies,  93. 


Jenks,  J.  W.,  questions  for  use  of 
Industrial  Commission,  162. 

Johnson,  Emory  R.,  idea  of  mo- 
nopoly, 11. 
classification  of  monopolies,  91. 


Large  scale  businesses,  not  in  them- 
selves monopolistic,  144. 
economic  advantages  possessed 

by,  146. 
See  also  Concentration  of  in- 
dustry. 

Large  scale  production.  See  Con- 
centration of  industry. 

Law  of  increasing  returns,  in  its 
bearing  on  natural  monop- 
oly, 65. 

Law  of  monopoly  charges,  103. 

Legal  decisions  on  the  nature  of 
monopoly,  22,  30. 

Lexis,  W.,  on  unity  of  control,  37. 
classification  of  monopolies,  86. 

Life  insurance,  concentration  of 
business  in,  189. 

Limitation,  the  essence  of  monop- 
oly according  to  Mill,  8. 
of  the  supply  of  raw  material,  56. 

Limits    of    monopoly    power,    as 
respects  price,  99. 
in  demand  or  consumption,  99. 

Local  monopolies,  80. 

Locke,  on  necessity  of  precise  defi- 
nition, 1. 

Lord  Farrer,  on  characteristics  of 
natural  monopoly,  61. 

M 

Macrosty,  H.,  on  concentration  in 
England,  238. 

Marshall,  A.,  on  philanthropy  of 
monopolists,  223. 

Marx,  K.,  view  regarding  concen- 
tration of  industry,  190. 


281 


INDEX 


Mill,  J.  S.,  definition  of  monopoly,  7. 

limitation  of  quantity,  8. 

unity  of  action,  9. 
Mixed  monopolies,  defined,  40. 
Modern  monopolies,  origin  of,  29. 
Monopolies  of  material  goods,  8a. 

of  services,  82. 
Monopolies,  with  power  of  increas- 
ing supply,  77. 

with  increasing  difficulty,  78. 

with  constant  difficulty,  80. 

with  decreasing  difficulty,  80. 
Monopoly  gains,  where  entered  in 
the  accounts  of  monopolies, 

139- 
Monopoly  groups,  134. 
Monopoly  price,  power  over  price 

not  sole  characteristic,  96. 
how  fixed,  100. 

changing  from  time  to  time,  101. 
and  from  place  to  place,  102. 
law  of,  103. 
sometimes  lowered  to  increase 

demand,  104. 
not  always  uniform,  106. 
difficulty  of  determining,  108. 
absence  of  uniformity  even  at 

the  same  time  and  place,  108. 
is  class  price,  114. 
not  of  necessity  higher  or  lower 

than  competitive  price,  118. 
result  of  fall  in,  123,  137. 
influence  of  taxes  upon,  128, 130. 
influence   on    future    supplies, 

132. 
influenced  by  surrogates,  133. 
influenced  by  fashion,  136. 
generally  higher  than  competi- 
tive price,  136,  221. 

N 
National  monopolies,  81. 
Natural  areas  of  monopoly,  60. 
Natural  gas,  57. 
Natural  monopolies,  55. 
defined,  43. 


Natural  monopolies. 

based  on  inherent  properties,  59. 

origin  of,  63. 
New  Jersey,  lax  laws  of,  regarding 
corporations,  268. 


Over-capitalization,  prevention  of, 
a  remedy  for  monopoly  evil, 
270. 

Over-production,  avoided  by  mo- 
nopoly, 149. 


Paper  trust,  174. 

Partial    monopolies,    defined,    32. 
See  also  Incomplete  monopo- 
lies. 
Patents,  44. 

combined  in  large  scale   pro- 
duction, 149. 
reform  of  law  of,  a  remedy  for 
monopoly  evil,  266. 
Patten,  S.  N.,  idea  of  monopoly,  is. 
classification  of  monopolies,  91. 
on    influence    of    custom    and 
fashion  on  monopoly  price, 

136- 
Personal  gains  not  monopoly  gains, 

139- 
Pipe    lines,  connection  with   mo- 
nopoly, 172. 
Pools,    a    condition    of    unstable 

equilibrium,  151. 
Potential  competition,  an   insuffi- 
cient   security  against    mo- 
nopoly, 251. 
J.  B.  Clark  on,  251. 
Price-cutting,  a  weapon  of  monopo- 
lies, 98. 
Private  monopolies,  defined,  40. 
usually  an  evil,  229. 
insolence  of,  231. 
less  common  in  Europe  than  in 
America,  232. 


282 


INDEX 


Prohibitions  of  monopolies  in 
American  state  constitu- 
tions, 28. 

Protective  tariff  and  monopoly,  52, 
266. 

Public  consumption  monopolies, 
46. 

Public  control  of  monopoly,  258. 

Publicity,  a  remedy  for  the  mo- 
nopoly evil,  268. 

Public  monopolies,  defined,  40. 

Public  ownership  of  monopolies, 
258,  262,  264. 


Quasi-competition,    possible   even 

with  monopoly,  73. 
Quicksilver    monopoly,    universal, 

88. 


Railways,    favoritism  a   source  of 
monopoly,  54. 
a  natural  monopoly,  68. 
rate-wars  among,  71. 
indications  of  monopoly  in,  72. 
attempts  at  variable  prices  by, 

in. 
special  favors  from,  170. 
and  the  coal  business,  171. 
and  Standard  Oil  Co.,  171. 
Regulation,  excessive,  to  beavoided, 

271. 
Residual  competition  an  insufficient 
security   against    monopoly, 

251- 

Retail  trade,  forces  leading  to  con- 
centration, 157. 

Rice,  George,  experience  with  Stan- 
dard Oil  Co.,  171. 

Rockefeller-Carnegie  combination 
in  iron  and  steel  business,  187. 


Secret    processes,    a    source    of 
monopoly,  74. 


Sellers'  monopolies,  81. 

Senior,  definition  of  monopoly,  5. 

causes  of  monopoly,  6. 

classification  of  monopolies,  84. 
Sidgwick,  definition  of  monopoly,  9. 

on  monopoly  price,  119. 

on    monopoly    vs.    monopoly, 

on  influence  of  monopoly  price 
on  future  supplies,  132. 

Small  scale  production,  advantages 
of,  197. 

Social  Democratic  party  in  Ger- 
many, division  in,  190. 

Socialism,  its  view  of   monopoly, 
67. 
its  position  regarding  limits  of 
competition,  142. 

Social  monopolies,  defined,  42. 

Special  privilege  monopolies,  de- 
fined, 51. 
based  on  public  favoritism,  51. 
based    on    private    favoritism, 
52. 

Stages  in  industrial  concentration, 
150. 

Standard  Oil  Company,  a  complete 
monopoly,  76. 
an  international  monopoly,  81. 
railway  discrimination  favoring, 
171. 

Statistics,  showing  concentration  in 
industry,  183, 191. 

Steuart,  Sir  James,  on  the  object 
of  political  economy  as  an 
art,  271. 

Stock-watering  a  means  of  disguis- 
ing monopoly  gains,  139. 

Strikes,  sometimes  promote  mo- 
nopoly, 61. 

Substitutes.     See  Surrogates. 

Sugar  trust,  aided  by  railways,  53. 

Surrogates,   not  inconsistent  with 
monopoly,  35. 
influence  of,  on  monopoly  price, 
*33- 


283 


INDEX 


Tariff,  reform    of,    a   remedy  for 

monopoly  evil,  266. 
Tariffs,  and  trusts,  156. 

a  cause  of  monopoly,  17a 
the  source  of  the  sugar  monop- 
oly in  Germany,  235. 
need  of  reform,  266. 
Taxes,    influence    on     monopoly 
price,   expressed   as  a  law, 
130- 
influence  on  monopoly,  249. 
Terminal    facilities,    a   source    of 

monopoly,  171. 
Trade  marks,  47. 

Trusts,  claims  of  promoters  of,  160, 
effect  on  steadiness  of  produc- 
tion, 208. 
futility  of  attempts  to  destroy, 

213. 
partly  speculative  in  character, 

214. 
von  Halle  on  attempts  to  destroy, 
240. 


U 


of 


Unity  of  action,  the   essence 

monopoly,  14. 
Unity  of  control,  made  an  essential 

element  of  monopoly  by  the 

author,  36. 


Unity  of  control, 
by  Walras,  37. 
by  Lexis,  37. 

Universal    monopolies.    See  Inter- 
national monopolies. 


Virtual  monopolies,  defined  by  the 
Century  Dictionary,  21. 

Von  Halle,  E.,  on  American  at- 
tempts to  destroy  trusts,  240. 

W 

Wagner,  Adolph,  on  the  desire  for 
agreement  among  producers, 
142. 

Walras,  L.,  on  unity  of  control,  37. 

Wealth  accumulation  and  wealth 
concentration,  their  connec- 
tion with  monopoly,  58. 

Wealth  concentration,   caused  by 
monopoly,  137. 
an  aid  to  monopoly,  266. 

Weeks,  Joseph  D.t  on  concentra- 
tion in  iron  business,  185. 

Willoughby,  W.  F.,  on  concentra- 
tion of  industry,  184. 
on  advantages  to  labor  of  large 
scale  production,  206. 


384 


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One  of  the  daintiest  specimens  of  bookmaking,  designed  to  serve 
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A  BOOK  OF  OLD  ENGLISH  BALLADS 

Edited  by  Hamilton  Mabie.  Superbly  illustrated  with 
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"  The  aim  has  been  to  bring,  within  moderate  compass,  a  collec- 
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A  HISTORY  OF  GREEK  ART.      With  an  Intro- 
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Philip  S.  Moxon,  Pastor  of  South  Congregational 
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HAPPINESS 

Essays    on    the     Meaning  of  Life.      By   Carl   Hilty. 
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THE  PILLAR  OF  LIGHT 

M  Breathless  interest  is  a  hackneyed  phrase,  but  every 
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his  or  her  veins,  will  agree  that  the  trite  saying  applies  to 
the  attention  which  this  story  commands. — NetoTork  Sun. 

THE  WINGS  OF  THE  MORNING 

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There  are  no  dragging  intervals  in  this  volume  :  from  the 
moment  of  their  landing  on  the  island  until  the  rescuing 
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young  people — nor  for  the  reader  either." — New  York 
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THE  KING  OF  DIAMONDS 

"  Verily,  Mr.  Tracy  is  a  prince  of  story-tellers.  His 
charm  is  a  little  hard  to  describe,  but  it  is  as  definite  as 
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robust  imagination  of  the  author. — San  Francisco  Exam- 
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VIA  CRUCIS  :  A  Romance  of  the  Second  Crusade. 

Illustrated  by  Louis  Loeb. 

Mr.  Crawford  has  manifestly  brought  his  best  qualities 

os  a  student  of  history,  and  his  finest  resources  as  a  master 

af  an  original  and  picturesque  style,  to  bear  upon  this  story. 

MR.   ISAACS  :  A  Tale  of  Modern  India. 

Under  an  unpretentious  title  we  have  here  one  of  the 
most  brilliant  novels  that  has  been  given  to  the  world. 

THE  HEART  OF  ROME. 

The  legend  of  a  buried  treasure  under  the  walls  of  the 
palace  of  Conti,  known  to  but  few,  provides  the  frame- 
work for  many  exciting  incidents. 

SARACINESCA 

A  graphic  picture  of  Roman  society  in  the  last  days  of 
the  Pope's  temporal  power. 

SANT'  ILARIO  ;  A  Sequel  to  Saracinesca. 

A  singularly  powerful  and  beautiful  story,  fulfilling  every 
requirement    of  artistic    fiction. 

IN  THE  PALACE  OF  THE  KING  :  A  Love  Story 
of  Old  Madrid.     Illustrated. 
The  imaginative  richness,  the  marvellous  ingenuity  of 
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THE   CALL  OF   THE  WILD 

With  Illustrations  by  Philip  R.  Goodwin  and  Charles  Livingston  Bull 
Decorated  by  Charles  Edward  Hopper 

««A  tale  that  is  literature  ...  the  unity  of  its  plan 
and  the  firmness  of  its  execution  are  equally  remarkable 
...  a  story  that  grips  the  reader  deeply.     It  is  art,  it 

is  literature It  stands  apart,  far  apart  with 

so  much  skill,  so  much  reasonableness,  so  much  convinc- 
ing logic." — N.  T.  Mail  and  Express. 

"A  big  story  in  sober  English,  and  with  thorough  art 
in  the  construction  ...  a  wonderfully  perfect  bit  of 
work.  The  dog  adventures  are  as  exciting  as  any  man's 
exploits  could  be,  and  Mr.  London's  workmanship  is 
wholly  satisfying." — The  New  York  Sun. 

"  The  story  is  one  that  will  stir  the  blood  of  every 
lover  of  a  life  in  its  closest  relation  to  nature.  Whoever 
loves  the  open  or  adventure  for  its  own  sake  will  find 
'The  Call  of  the  Wild'  a  most  fascinating  book." — 
The  Brooklyn  Eagle. 

THE   SEA   WOLF 

Illustrated  by  W".  J.  Aylward 

"  This  story  surely  has  the  pure  Stevenson  ring,  the 
adventurous  glamour,  the  vertebrate  stoicism.  'Tis  surely 
the  story  of  the  making  of  a  man,  the  sculptor  being 
Captain  Larsen,  and  the  clay,  the  ease-loving,  well-to-do, 
half-drowned  man,  to  all  appearances  his  helpless  prey." 
— Critic. 

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Date  Due 

JAN  4  '80 

FEB  I 

7  1968 

FEP  V 

196E  P. 

MAY 

9  1973 

MAY 

9  1973  4 

NOV 

4  19  »* 

1   q 

$ 

UC  SOUTHERN  REGIONAL  LIBRARY  FACILITY 


A  A      000  028  213 


HD2731 


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Ely,  R.T. 

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